FINRA Fines Firm for IPO Prospectus Delivery Failures

A firm settled FINRA charges for supervisory deficiencies related to its obligations to deliver preliminary IPO prospectuses to institutional customers.

According to the AWC, the firm relied on whether customers had consented to electronic delivery and had email addresses on file, with no process to verify successful transmission. FINRA found that the firm failed to review available information showing that certain institutional customers did not receive the required prospectuses. FINRA concluded that the firm's supervisory system and written supervisory procedures ("WSPs") were not reasonably designed to ensure compliance with Exchange Act Rule 15c2-8(b) ("Delivery of prospectus"), which requires delivery of preliminary IPO prospectuses to customers expected to receive allocations.

FINRA also found that the firm reviewed whether institutional customers had electronic consent and email addresses for only a sample of three IPOs per quarter, leaving most of the roughly 400 offerings during the period without supervisory review of prospectus delivery. FINRA found that the firm failed to add customers who declined electronic consent to its hard copy mailing list. FINRA concluded that these deficiencies meant the supervisory system did not ensure preliminary prospectuses were provided at least 48 hours before trade confirmations and failed to detect instances of untimely delivery.

FINRA concluded that the firm violated FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade") and 3110 ("Supervision"). FINRA noted that the firm self-identified some of the preliminary IPO prospectus delivery deficiencies, implemented remedial measures and updated its written supervisory procedures.

To resolve the matter, the firm consented to (i) a censure and (ii) payment of a $150,000 fine.