FINRA charged a broker for lying to a Native American tribe about the $11 million in commissions he charged when he sold the tribe $190 million in nontraded real estate investment trusts and business development companies.
Between June 2011 and January 2015, broker Gopi Krishna Vungarala “regularly lied to his customer, a Native American tribe, regarding investments he recommended,” according to the FINRA complaint.
Vungarala served as the unnamed tribe’s registered representative as well as its treasury investment manager, according to the complaint. He “fraudulently induced the tribe to invest hundreds of millions of dollars in nontraded REITs and BDCs, without revealing he and his firm received commissions for the sales (usually 7%) or the availability of certain volume discounts.”
Also according to the complaint, the tribe bought $190.4 million of illiquid REITs and BDCs and were charged $11.4 million in commissions, which went to his broker-dealer Purshe Kaplan Sterling Investments. Mr. Vungarala was paid $9.6 million – or 84.3% – of those Purshe Kaplan commissions.
The client was overcharged $3.4 million in commissions, according to the FINRA complaint, which was also filed against Purshe Kaplan. The firm’s supervisory failures prevented it from detecting and halting Vungarala’s fraudulent conduct, according to FINRA.
When notified of the charges, Vungarala said that he “had not received any notice of this yet and [I] vigorously deny any allegations.”
FINRA’s complaint lists four causes of action, including the misrepresentation and omission of a material fact in connection with the sale of securities; the failure to disclose to the client that it was eligible to receive volume discounts; the failure to supervise Vungarala’s dual relationship with the tribe; and the failure to supervise the sale of nontraded REITs and BDCs for the application of volume discounts.
“In order to induce the tribe to make these purchases, notwithstanding the tribe’s prohibition against conflicts of interest, Vungarala falsely represented to (the tribe) that he would not receive any commissions on purchases of the nontraded REITs and BDCs made in the tribe’s (Purshe Kaplan) account,” according to the complaint. Vungarala also allowed tribal leaders to believe Purshe Kaplan would not receive any commissions on these transactions.
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