On April 18, 2013, FINRA announced that it had fined HKC Securities, Inc., nka AGGM, Inc., and Harold K. Cohen collectively $60,000.00 in sanctions for materially failing to fairly present the risks and potential disadvantages of hedge fund investing.
Between January 2008 and June 2011, the Firm’s procedures for the review and approval of hedge fund institutional sales material were not reasonably designed or implemented to achieve compliance with FINRA’s contents standards for institutional sales material. Cohen, as the Firm’s Chief Compliance Officer and the principal responsible for the review and approval of institutional sales material, did not engage in adequate supervision to achieve compliance with FINRA’s content standards for institutional sales material. The Firm and Cohen violated NASD Rule 221(b)(1)(B), NASD Rule 3010, NASD Rule 2110, and FINRA Rule 2010.
The Firm failed to adequately supervise the use of institutional sales material by its registered representatives. Cohen did not follow the Firm’s written procedures, which required post-hoc review of institutional sales material and a written notation of approval. Cohen’s review was not focused on compliance with FINRA’s content standards. Rather, he looked to see whether the Firm’s summary was consistent with his own understanding of the funds being marketed. The failure to review documents prepared by the funds resulted in documents being sent to potential investors that were labeled “not to be distributed to clients,” among other things.
The findings also concluded that the Firm did not maintain a complete file of institutional sales material and did not notate the sales material with the name of the person who prepared the document and the date the document was first circulated. Cohen was responsible for ensuring the Firm’s compliance with these recordkeeping requirements.
In settling this matter, HKC Securities, Inc., nka AGGM, Inc., and Harold K. Cohen neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.