Broker-Dealer Fined for Improper Conduct During a Private Placement
Commentary by Steven Lofchie
A broker-dealer that engaged in the private placement of equity securities settled FINRA charges for soliciting customer purchases of the relevant security during a "restricted period."
FINRA found that the firm conducting the private placement offering was involved in a distribution as defined under Regulation M (see Rule 100(b) ("Definitions")). FINRA found that there were three separate closings of the private placement and a registered representative of the firm solicited purchases from the market after the second closing but before the third closing. FINRA concluded that the firm violated Regulation M which prohibits a firm participating in a "distribution" from soliciting market purchases during a "restricted period" beginning from one to five days prior to the offering and concluding when the offering is completed.
In addition, FINRA found that the firm violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade") and Rule 3110 ("Supervision"). To settle the matter, the firm agreed to a censure and a $20,000 fine.
Commentary
The enforcement action provides fairly limited details. However, it is notable that it was not FINRA that characterized the private placement as a "distribution"; that determination was made by the firm and accordingly the firm was bound by it.