FINRA Sanctions Firm for Crowdfunding and Recordkeeping Violations

A firm settled FINRA charges for improperly participating in crowdfunding offerings and for related recordkeeping failures.

According to the AWC, the firm acted as an intermediary for two Regulation Crowdfunding (“Reg CF”) offerings by "Issuer A"; "Funding Portal A," an affiliated entity of Issuer A, also performed intermediary functions. FINRA stated that the firm "entered into a technology licensing agreement with Issuer A" that allowed the issuer to run its offerings through the same system used by the affiliated funding portal. FINRA found that the firm "knew or should have known that the offerings were not conducted exclusively through a single intermediary."

FINRA said that investors were directed to create accounts on Funding Portal A’s platform, used that platform to "track and manage their investments" and that Funding Portal A was involved in handling funds and refunds. FINRA stated that these functions are "required to be performed only by an intermediary" under Reg CF. FINRA determined that the firm lacked a "reasonable basis to believe" the issuer complied with these requirements. 

FINRA also found that the firm failed to preserve electronic communications with the issuer related to the offerings. FINRA said that the firm either deleted or permitted the deletion of required records without retaining copies.

FINRA concluded that the firm violated Regulation Crowdfunding Rule's 301(a) ("Measures to reduce risk of fraud") and 404(a) ("Records to be made and kept by funding portals"), as well as FINRA Rule 200(a) ("Funding Portal Conduct"). 

To settle the charges, the firm agreed to (i) a censure, (ii) pay a $140,000 fine, and (iii) certify, within 90 days, that it implemented remedial measures.