Centaurus Financial Penalized $1 Million for Unsuitable Structured Product Sales

The Securities and Exchange Commission charged Centaurus Financial, branch manager Ricky A. Mantei, and registered representative Atul Makharia with unsuitably recommending complex structured securities to retail clients. The SEC also charged Centaurus Financial with failing to supervise its personnel.

The securities at issue were variable interest rate structured products (VRSPs), which are products that begin with fixed-interest-rate payments that eventually convert to variable rates and, in some cases, can result in the total suspension of interest payments. According to the VRSP documents, investors risked losing "some or all of their invested principal" if the reference securities were to decrease to a certain threshold at maturity.

SEC investigators found that Centaurus Financial representatives, including Makharia, unsuitably recommended VRSPs to 94 retail customers for whom VRSPs were unsuitable, given the various customers' finances and investment objectives. Specifically, the customers for whom VRSPs were unsuitable were at or approaching retirement, had annual incomes of less than $100,000, and indicated low/conservative or moderate risk tolerance preferences.

Additionally, Centaurus purportedly failed to implement customer-specific suitability procedures, meaning that Centaurus failed to supervise VRSP sales. Investigators also charged Centaurus with violating federal securities laws requiring broker-dealers keep accurate books and records.

Centaurus agreed to cease and desist from future violations and agreed to pay a civil penalty of $750,000, plus about $5,000 in disgorgement. Mantei and Makharia also agreed to civil penalties and disgorgement payments, collectively totalling approximately $1 million in fines and payments.

Makharia, specifically, agreed to a six-month suspension from business involving penny stocks.

If you suffered damages or losses after investing with a Centaurus Financial broker or any investment adviser who unsuitably recommended complex securities, such as variable interest rate structured products (VRSPs) with characteristics such as riskiness that were unsuitable given your investment objectives or risk tolerance levels, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

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