Firm Fined for Deficient Procedures on Contingent Offerings

A firm settled FINRA charges for supervisory failures concerning escrow accounts in contingency offerings.

According to the Letter of Acceptance, Waiver and Consent, the firm participated in contingent offerings (where a minimum amount must be sold for any of the sales to be effective), but failed to establish and maintain a supervisory system, including written supervisory procedures ("WSPs,") reasonably designed to ensure compliance with the relevant rules. FINRA stated that the firm’s WSPs included an escrow requirement for proceeds obtained shares sold in the offering, however, the firm had no procedures to establish when to release funds in the escrow account to the issuers. FINRA also found that the firm had no procedures to detect whether the offering minimum had been met, or to address the firm’s obligations if (i) the minimum contingency was not met by the offering’s termination date, (ii) the termination date was extended, or (iii) the minimum contingency was lowered.

FINRA found that the firm violated Exchange Act Section 15(c)(2) ("Registration and Regulation of Brokers and Dealers"),SEA Rules 15c2-4 ("Transmission or Maintenance of Payments Received in Connection with Underwritings"), and FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle the charges, the firm agreed to (i) a censure, (ii) a $40,000 fine and (iii) an undertaking to certify in writing remediation of the issues.