Broker-Dealer Settles FINRA Charges for Private Offering Due Diligence Failures

A broker-dealer settled FINRA charges for failing to conduct adequate due diligence on issuers of privately sold securities.

In a Letter of Acceptance, Wavier and Consent, FINRA stated that the firm did not provide guidance on how to perform reasonable due diligence for private offerings before recommending them to customers, solely relying on the documentation provided by the issuer, which omitted relevant information. Additionally, the firm did not have procedures in place to address the red flags that arose during the investigation.

FINRA found the firm in violation of FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle the charges, the firm agreed to a censure and a $17,500 fine. The firm will also issue a written statement within 120 days of acceptance of the AWC certifying that it has implemented sufficient supervisory systems and written supervisory procedures designed to address its due diligence deficiencies in connection with private offerings.