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FINRA Fines Two Crowdfunding Portals

Two FINRA-registered funding portals settled FINRA charges for failure to comply with securities regulations pertaining to protection of crowdfunding investors.

FINRA found that from 2016 to 2021, one portal (i) raised $20 million more than was permissible under crowdfunding limits, (ii) failed to promptly transmit funds to issuers and/or investors, (iii) impermissibly solicited and recommended investments being offered to "hundreds of thousands of investors," (iv) posted misleading communications on its website and (v) failed to maintain a reasonable supervisory system. As a result, FINRA found that the portal violated Reg CF Rule 402(a) ("Conditional safe harbor"), Reg CF Rule 300(c) ("Intermediaries: Definitions"), Reg CF Rule 301(a) ("Measures to reduce risk of fraud"), Reg CF Rule 303(e) ("Requirements with respect to transactions: Maintenance and transmission of fund") and FINRA Funding Portal Rule 200(a) ("Standards of Commercial Honor and Principles of Trade") and FINRA Funding Portal Rule 200(c) ("Communications with the Public"). To settle the charges, the portal agreed to a censure, a $1,400,000 fine and engage an independent compliance consultant.

In the second matter, FINRA found that between November 2016 and January 2018, the portal (i) posted issuer communications that it knew or had reason to know were false and misleading, (ii) "posted inaccurate counts of the number of investors in the offerings" and (iii) "failed to reasonably supervise potentially misleading issuer-prepared content." As a result, the portal violated FINRA Funding Portal Rule 200(c), Rule 300(a) ("Funding Portal Compliance: Supervisory System") and Rule 200(a). To settle the charges, the portal agreed to a censure, a $350,000 fine and a certification that it has established policies, procedures and internal controls to remediate any issues.

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Crowdfunding
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Funding Portals
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