Broker-Dealer Settles FINRA Charges for Private Placement Offering Violations
A broker-dealer settled FINRA charges for failing to conduct reasonable due diligence in connection with a private-placement offering and for failing to maintain the minimum net capital required to operate as a securities business.
In a Letter of Acceptance, Waiver, and Consent, FINRA found that the broker-dealer (i) failed to reasonably consider certain aspects of the private-placement offering, including the issuer's initial financing arrangement and the terms of the offering contingency provisions, (ii) failed to specify a date by which the contingency in the private-placement offering had to be met, (iii) allowed the issuer to use non-bona-fide sales to meet the offering contingency and (iv) failed to meet the minimum net capital requirement for operating as a securities firm.
As a result, FINRA found that the broker-dealer violated Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), Rules 3110(a) and 3110(b) ("Supervision") and Rule 4110(b)(1) ("Capital Compliance"). Additionally, the broker-dealer violated Section 15(c) of the Exchange Act ("Registration and regulation of brokers and dealers") as well as SEA Rule 15c3-1 ("Net capital requirements for brokers or dealers") and SEA Rule 10b-9 ("Prohibited representations in connection with certain offerings").
To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a $100,000 fine and $170,000 in partial restitution plus interest and (iii) certification in writing that it will not resume sales of private-placement offerings unless and until it has "implemented supervisory systems and written supervisory procedures for due diligence on private-placement offerings that are reasonably designed to achieve compliance with the Exchange Act and FINRA rules."
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