FINRA Fines Firm for Net Capital Deficiencies and Filing Lapses
A firm settled FINRA charges for operating below its minimum net capital requirement, inadequate supervisory controls, and failures to make timely filings in connection with public offerings.
According to the AWC, over a nearly four-year period, the firm failed to maintain the minimum net capital requirement on 62 occasions. FINRA said the firm participated in firm commitment offerings as a member of underwriting syndicates, but that for 25 offerings, the firm used backstop agreements with entities "not a member of the underwriting syndicate," and for 37 offerings, the firm relied on "Agreement[s] Among Underwriters" that lacked required provisions. FINRA concluded that the firm retained open contractual commitments, resulting in net capital deficiencies ranging from $37,000 to $62 million.
FINRA also found deficiencies due to a principal’s capital withdrawals and to the misclassification of certain payments as income instead of deferred income. These failures resulted in net capital shortfalls ranging from approximately $222,000 to $765,000.
FINRA found the firm failed to maintain adequate written supervisory procedures addressing how to calculate net capital in connection with such securities offerings and backstop agreements or as to the permissibility of capital withdrawals by owners.
FINRA also found that the firm failed to submit 159 required filings related to its participation in public offerings, including registration statements, offering documents, notices of effectiveness, and withdrawal requests. FINRA noted that the firm submitted an additional 41 required documents late, such as registration statements, offering memoranda, and notices of effectiveness.
FINRA determined that the firm violated Exchange Act section 15(c)(3) ("Government securities brokers and dealers") and rule 15c3-1 ("Net capital requirements for brokers or dealers"), as well as FINRA Rules 2010 ("Standard of Commercial Honor and Principles of Trade"), 3110 ("Supervision"), 4110 ("Capital Compliance"), and 5110 ("Corporate Financing Rule—Underwriting Terms and Arrangements").
To settle the charges, the firm agreed to (i) a censure and (ii) a $125,000 fine.