A former Centaurus Financial broker shuffled clients’ investments into a unit investment trust when more affordable options of the product were available, according to a settlement between the advisor, firm and the Financial Industry Regulatory Authority.
The settlement with Centaurus and Florida-based former registrant Donnie Ingram is a bookend to complaints filed in September of last year, in which regulators argued Ingram subjected clients to unnecessary fees while the firm failed to supervise him and catch the lapses.
Centaurus is a California-based firm with about $2.7 billion in managed assets. Ingram first joined the industry in the mid-1990s, bouncing around a number of firms before a 19-year stint at Investors Capital Corp., according to his BrokerCheck profile. He joined Centaurus Financial in 2016, and owned and operated a Winter Haven, Fla., branch of the firm, the complaint stated.
Ingram also founded his own advisory firm called Ingram Advisory, registering in Florida in 1999, according to the settlement. When he joined Centaurus in 2016, most of Ingram’s Centaurus clients also were those of his firm, with advisory and brokerage accounts while holding their securities solely at Centaurus.
In 2008, Ingram hired a chief compliance officer for Ingram Advisory. This individual also served as the branch manager for the Centaurus branch Ingram led, according to the complaint.
Starting in September 2016, and for the following two years, Ingram allegedly recommended that 81 customer accounts purchase 595 “standard” version UITs, according to the settlement. UITs are publicly offered to investors and issue securities, known as “units” that represent interest in a securities portfolio that is typically not actively traded until a specified date when the securities are sold, with the profits paid out to investors.
But customers can purchase either fee-based or standard UITs, even if the customer’s account is held at a b/d. Typically, fee-based UITs are less expensive, because sponsors will eliminate certain sales charges.
But by recommending the standard UITs, Ingram’s customers paid those sales charges, incurring more than $300,000 in unnecessary expenses.
Additionally, Ingram recommended clients purchase a number of real estate investment trusts and other offerings through Centaurus, instead of through his advisory firm.
“These commissions could have been avoided had Ingram taken advantage of his investment advisory relationship with the customers and purchased them through Ingram Advisory,” the order read. “Ingram’s conduct allowed him and Centaurus to share in the selling commissions that his customers incurred while providing his customers with no additional benefits.”
But Centaurus was also on the hook for oversight shortfalls, FINRA claimed. The unnamed CCO/branch manager (who was unnamed in FINRA's complaint) never performed any suitability reviews of Ingram’s transactions, but Centaurus’ supervisory procedures demanded that “a trading principal and/or a Regional Compliance Supervisor'' conduct additional reviews of Ingram’s work. None of this happened, according to FINRA.
Ingram voluntarily resigned from Centaurus in 2020.
As a part of the settlement, Centaurus agreed to a censure and $50,000 fine (with Ingram acquiescing to a six-month suspension and $15,000 fine though he’s not currently registered with any firms). Both agreed to make restitution to harmed clients, according to FINRA.
Representatives from Centaurus did not return requests for comment as of publication time.
Centaurus has also run into regulatory trouble in the past by allegedly failing to disclose conflicts to clients investing in certain mutual fund share classes. The firm settled SEC charges in 2021 that it recommended investing in certain share classes when more affordable classes of the same mutual funds were available. After failing to self-report the disclosure lapses to the SEC in 2018, the firm agreed to pay $1.2 million and distribute funds to harmed clients.