FINRA Fines Firm for Failing to File Offering Documents
Commentary by Andrew Lom
A firm settled FINRA charges for failing to file required private placement offering documents.
According to the AWC, the firm failed to file private placement memoranda, or other offering documents, for five private placement offerings sold by its registered representatives.
FINRA concluded that the firm violated FINRA Rules 2010 ("Standards of Commercial Honor and Principles of Trade") and 5123 ("Private Placements of Securities").
To settle the charges, the firm agreed to (i) a censure and (ii) a $20,000 fine.
Commentary
The placement agent failed to make the mandatory FINRA Rule 5123 filing — i.e., it did not submit the private placement memorandum, term sheet, or other offering documents (or a notice that no documents were used) to FINRA within 15 calendar days after the first sale, resulting in a FINRA Rule 5123 and Rule 2010 violation.
For private offerings, it is important to understand that this broker-dealer filing obligation runs parallel with, but is independent of, the issuer’s obligations to file a Form D with the SEC within 15 calendar days after the first sale in a Regulation D offering, and, for Rule 506 offerings, make state "blue sky" notice filings (and pay fees) in each state where sales occur—typically keyed to the same first-sale date.
In practice, these timelines "dovetail" because all three regimes are triggered by the first sale: the broker-dealer files with FINRA, the issuer files Form D federally, and the issuer completes state notices, but each is a separate duty with its own consequences for noncompliance. While the FINRA obligation includes submitting copies of offering documents, which usually would have been prepared by the issuer, the issuer’s own Form D and state notice filings typically do not include those documents.