Firm Settles FINRA Charges for Misleading Investors in Private Placement Offering

A firm settled FINRA charges for engaging in a scheme to deceive investors in pre-IPO private placement offerings and failing to reasonably enforce its supervisory protocols.

In a Letter of Acceptance, Waiver and Consent, FINRA found that the firm misled investors by selling pre-IPO shares at a specified price while knowing that it did not have an agreement to acquire the shares at the stated price. FINRA alleged that it was not until months later that the firm disclosed to its investors that it could not acquire the shares and subsequently offered them a refund plus interest or the ability to purchase the shares at more than double the cost. Additionally, FINRA found that the firm did not follow its own pre-IPO procedures when it failed to adequately investigate whether it could acquire the shares at the stated price.

As a result, FINRA concluded that the firm violated Section 17(a)(3) ("Use of interstate commerce for purpose of fraud or deceit") of the Securities Act of 1933, FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade") and Rule 3110(a) and (b) ("Supervision"). To settle the charges, the firm agreed to (i) a censure, (ii) a $300,000 fine and (iii) disgorgement in the amount of $363,447.67 plus interest.