Lincoln Financial Advisors Fined $150,000 Relating to Hedge Fund Investments

FINRA has fined Indiana brokerage firm Lincoln Financial Advisors Corporation $150,000. For failing to adequately supervise stockbrokers’ sales of a hedge fund. The Lincoln brokers recommended that customers invest in a hedge fund within a sub-account of a private placement variable annuity (PPVA). The hedge fund engaged in a complex options trading strategy that exposed customers to a high degree of financial risk. Unsuitable investment recommendations are one of the most common forms of stockbroker negligence.

Lincoln customers invested a total of approximately $11.7 million in the hedge fund before the hedge fund was shut down. FINRA found that Lincoln failed to properly train its brokers regarding the nature or risks of the hedge fund and failed to adequately supervise brokers’ recommendations of the hedge fund. Lincoln’s internal rules also limited such alternative investments to no more than 10 percent of a customer’s net worth, but Lincoln failed to review customers’ investments in the hedge fund to ensure that brokers complied with Lincoln’s internal rule.

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