SEC Fines Centaurus Financial For Bad Investment Advice To Investors

Centaurus Financial Inc., branch manager Ricky Mantei, and registered representative Atul Makharia have settled charges with the SEC relating to the unsuitable recommendation of variable interest rate structured products to 94 retail customers.

According to the SEC, a VRSP is a “principal-at-risk” security if the VRSP’s referenced securities indexes, such as the S&P 500 and/or the Russell 2000 stock indexes, decline by more than a specified percentage at maturity, typically 50%. Warnings that “there is no minimum payment at maturity” can be found in the prospectuses of several of the most highly suggested VRSPs. Therefore, it is possible that an investor could end up losing all of the money they put into the securities.

Atul Makharia and seven other registered representatives from Centaurus FinanciaI’s Lexington, South Carolina branch office recommended VRSPs to customers between June 2016 and July 2019 when the SEC determined that these investments were unsuitable for these customers given their individual financial situations and needs.

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According to the SEC, Makharia and the other Centaurus registered representatives made these recommendations despite knowing or having a reasonable basis to believe that the specified customers to whom these VRSPs were recommended were at or nearing retirement age; had an annual income of less than $100,000; in most cases had a net worth of less than $500,000; had a low or moderate risk tolerance; had investment objectives that included, or were similar to, retirement savings and tax deferral; and had a low or moderate risk tolerance.

Furthermore, the SEC claims that Centaurus did not create and maintain specific records in regard to specific customer accounts from at least June 2016 through July 2019. During this time period, Centaurus gathered necessary account data from customers in an electronic format, such as names, SSNs, addresses, phone numbers, employment histories, incomes, net worths, and investment goals.

Centaurus allegedly broke SEC rules by failing to keep some of this data for at least six years in some cases. Furthermore, Centaurus did not maintain a record showing that, upon request, it provided the customer with a copy of the updated account record or an alternative document containing the required information whenever the customer’s investment objectives for their account changed.

Without admitting or denying the SEC’s findings, Centaurus, Mantei, and Makharia all agreed to stop violating the provisions that were cited in the order. Centaurus also agreed to be publicly reprimanded, to hire an independent compliance consultant, and to pay a disgorgement of $4,876 plus prejudgment interest of $623 and a civil penalty of $750,000.

Mantei settled for a civil penalty of $206,000, a six-month suspension from all supervisory duties, and the repayment of disgorgement totaling $92,650 (plus prejudgment interest of $11,842). Makharia settled for a $35,000 civil penalty and a six-month ban from participating in any association or trading penny stocks.

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