September 9, 2022

Broker-Dealer Fined for Failing to Supervise Suitability Recommendations on Private Placements

A broker-dealer settled FINRA charges for failing to reasonably supervise suitability recommendations in connection with the offering of private placements, as well as for late filing of required documents.

In a Letter of Acceptance, Waiver, and Consent, FINRA found that the broker-dealer lacked adequate controls to (i) define what constitutes a recommendation in connection with sales of private placements, (ii) provide information to supervisors on how to determine if a private placement was correctly recommended and (iii) address retaining documents detailing whether and why a private placement was recommended. FINRA determined that the lack of these controls demonstrated a lapse in required suitability reviews prior to issuing a recommendation. FINRA found that the broker-dealer failed to identify that a recommendation had been made in several instances, and failed to document a suitability analysis in others.

Additionally, FINRA found that the broker-dealer filed documents relating to private placements (as required by Rule 5123 ("Private Placements of Securities")) up to 42 days late, and that some of the filings were incomplete.

As a result, FINRA determined that the broker-dealer violated Rule 2010 ("Standards of Commercial Honor and Principles of Trade"), Rule 3110 ("Supervision") and Rule 5123. To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a civil monetary penalty of $200,000 and (iii) undertakings to improve its supervisory controls regarding private placement offerings.

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