FINRA Sanctions Polar Investment Over Penny Stock Transactions

The Financial Industry Regulatory Authority (FINRA) has sanctioned Polar Investment Counsel, Inc. (Polar Investment) concerning allegations from 2011 and 2012, a firm advisor of Polar recommended various low-priced securities (penny stocks) received a total of 14 purchase orders for those securities. FINRA alleged that the representative marked eight of the orders as “unsolicited,” meaning that the customer instructed the advisor to purchase the security without any prompting from the advisor. FINRA found that the unsolicited marking was incorrect given that the advisor had brought the securities to the customers’ attention. FINRA found that the mismarked orders caused the firm’s books and records to be inaccurate. In addition, FINRA determined that Polar Investments did not permit brokers to recommend penny stock transactions and mistakenly assumed that all 14 transactions were unsolicited and did not conduct a sufficient supervisory review of those transactions.

Polar Investment has been registered with FINRA since 1997, its main office is in Thief River Falls, Minnesota, and is also registered as an investment advisor with the SEC. Polar Investment has 18 registered representatives operating out of 12 branch locations.

FINRA alleged that throughout 2011 and 2012, Polar Investment’s written supervisory procedures prohibited representatives from recommending penny stocks to the firm’s customers. As a consequence, Polar Investments presumed that all penny stock transactions were unsolicited and the firm did not subject advisors to adequate supervisory review. Instead, FINRA found that the firm had the customer sign a penny-stock disclosure form. FINRA found that between June 2011 and April 2012, a Polar Investment advisor by the initials “MV” brought various penny stocks to the attention of some of his customers. The advisor’s actions, according to FINRA, resulted in at least 14 orders to buy those securities.

FINRA also found that under the firm’s written supervisory procedures a transaction was to be considered to be recommended when a broker brings a specific security to the attention of the customer through any means. Nonetheless, FINRA found that MV mistakenly believed that the transactions were unsolicited, MV’s practice of introducing customers to various penny stocks was known to the firm, and Polar Investments failed to ensure that MV understood the distinction between solicited and unsolicited trades. FINRA found that MV believed that all 14 transactions were unsolicited but only indicated “unsolicited” on eight of them and inadvertently marked the other six transactions as “solicited,” which was actually the correct marking. FINRA found that Polar Investments contacted MV about these six orders and confirmed that MV had intended to submit the trades as unsolicited and allowed the trades to stand.

The attorneys at Gana Weinstein LLP are experienced in representing investors in securities arbitration to concerning unsuitable investments in penny stocks. Our consultations are free of charge and the firm is only compensated if you recover.