Firm Settles FINRA Charges for Private Placement Violations

A firm settled FINRA charges for supervisory failures on private placement solicitations, misleading retail communications, and notification failures on the termination of research coverage.

According to the AWC, the firm's supervisory procedures prohibited general solicitation, but failed to define the term or provide guidance on avoiding it. FINRA found that the firm also lacked a system to verify if offerees had pre-existing, substantive relationships with the firm. As a result, FINRA found the firm sold approximately $48 million in unregistered offerings to customers without demonstrating the necessary relationships to claim an exemption from registration. FINRA determined that the firm failed to establish a supervisory system designed to prevent general solicitation in private placements. 

In addition, FINRA also found that the firm distributed retail communications regarding private placements that omitted key risks — such as the speculative and illiquid nature of the investments — and contained exaggerated claims on valuations. 

FINRA also determined that the firm discontinued coverage of a company rated "buy" for extended periods without "issuing a final research report" or recommendation. The firm provided notification four years after the last report was published. FINRA determined that the firm failed to provide prompt notice to customers on the termination of research coverage for the specific issuer. 

Accordingly, FINRA found the firm violated Securities Act Section 5 ("Prohibitions relating to interstate commerce and the mails"), and FINRA Rules 3110 ("Supervision"), 2210 ("Communications with the Public"), 2241 ("Research Analysts and Research Reports"), and 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle these charges, the firm agreed to a censure and a $375,000 fine.