FINRA Fines Firm for Unfair and Unreasonable Underwriting Compensation
A firm settled FINRA charges for (i) receiving unfair and unreasonable underwriting compensation that was also inaccurately described in offering documents, and (ii) failing to make, or timely make, required filings regarding three public offerings.
According to the AWC, the firm served as the lead underwriter in the initial public offering of a special purpose acquisition company ("SPAC") and participated in other public securities offerings. FINRA found that:
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the firm received underwriting compensation that exceeded permissible limits, including private warrants valued at more than 30 percent of the total public offering proceeds.
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the firm's filings with FINRA and the prospectus inaccurately described the terms of the underwriting compensation, including misrepresenting lock-up provisions and the exercise periods of the warrants.
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the firm failed to file required underwriting-related documents with FINRA in connection with three separate public offerings. Additionally, several filings were submitted late, with delays ranging from less than one month to over seven months late.
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the firm failed to establish supervisory procedures (i) to determine the fairness of its underwriting compensation and (ii) with respect to FINRA Rule 5110 filing requirements. The firm also failed to implement any supervisory review to monitor its underwriting compensation and its filings with FINRA, and failed to assign supervisory responsibility for compliance with FINRA Rule 5110 to any individual or supervisor. The firm further failed to establish reasonable supervisory systems and written supervisory procedures concerning the underwriting of public securities despite that being the firm's "primary business activity."
FINRA determined that the firm violated FINRA Rules 5110 ("Corporate Financing Rule — Underwriting Terms and Arrangements"), 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the firm agreed to (i) a censure, (ii) pay a $900,000 fine and (iii) an undertaking requiring certification of the firm's supervisory system with respect to compliance with FINRA Rule 5110.