Firm Settles FINRA Charges for Inadequate Due Diligence

A firm settled FINRA charges for failing to satisfy "reasonable-basis suitability obligations" for recommendations on private placements, insufficient supervision of trading activities and inaccuracies in trade reporting and customer confirmations.

According to the AWC, the firm recommended three private placements without performing necessary due diligence to meet its suitability obligations. FINRA found that the firm failed to assess the risks associated with the offerings, including those related to the complex capital structure and the potential returns of the underlying projects. Further, FINRA found that the firm failed to enforce any due diligence procedures outlined in its written supervisory procedures.

In addition, FINRA found that the firm failed to maintain adequate supervisory systems to identify and address potential non-bona fide trades executed between the firm and its affiliate fund.

FINRA said the firm provided inaccurate trade confirmations, for roughly 7,000 corporate bond transactions during the relevant period, that inaccurately stated that the firm acted in an agent capacity. FINRA said these errors led to omissions in mark-up and mark-down disclosures. FINRA found that the firm also misreported 3,419 transactions to TRACE, listing them as agent rather than in a principal capacity.

FINRA concluded that the firm violated FINRA Rules 2111 ("Suitability"), 3110 ("Supervision"), 5210 ("Publication of Transactions and Quotations"), 2232 ("Customer Confirmations"), 6730 ("Transaction Reporting") and 2010 ("Standards of Commercial Honor and Principles of Trade") and Exchange Act Rule 10b-10 ("Confirmation of transactions"). 

To settle the charges, the firm agreed to (i) a censure, (ii) pay a $225,000 fine, (iii) make partial restitution of $575,000 to affected customers and (iv) certify within 60 days that corrective measures have been implemented.