Colorado Financial Service Corporation has agreed to pay a fine of $45,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

Closed-end funds (CEFs) offer investment advantages such as access to specialized or illiquid assets. They may, however, present unique risks based on their complexity, illiquidity, leverage, and/or investment in speculative assets.

From March 2021 to at least February 2023, Colorado Financial failed to reasonably supervise and have reasonably designed policies and procedures regarding recommendations to purchase CEFs investing in high-yield, below-investment-grade debt securities, some of which were leveraged and all of which were inconsistent with customers’ investment profiles.

Therefore, the firm violated Exchange Act Rule 15l-1(a)(i) (Regulation BI), and FINRA Rules 3110 and 2010.

The firm has agreed to a censure in addition to the fine of $45,000. It also must pay restitution of $29,049, plus pre-judgment interest.

Colorado Financial has been a FINRA member since December 2000. The firm is headquartered in Centennial, Colorado, and employs 35 registered representatives at 13 branch locations. The firm’s primary lines of business are investment banking, private placement of securities, and the sale of equities, mutual funds, variable life insurance and annuities.