Broker-Dealer Charged for Suitability and Supervisory Violations Involving Private Placements

The FINRA Department of Enforcement charged a broker-dealer for alleged suitability and supervisory violations on the basis of recommending and selling interests in four private placements to its customers. According to FINRA, the broker-dealer did not "conduct reasonable diligence" on the issuers of the investments, who claimed to be in the concert- and theater-ticket purchasing and reselling business. Moreover, the broker-dealer is alleged to have failed to properly investigate red flags indicating the issuers' inability to operate such a business. FINRA alleges that as a result of the broker-dealer's unsuitable recommendations and inadequate supervision, its customers lost millions of dollars after the discovery that the offerings were in fact a Ponzi scheme. In response to these findings, the FINRA Department of Enforcement determined that the broker-dealer violated FINRA Rules 2111, 3110(a), 3110(b), and 2010.