FINRA Fines Firm for Inaccurately Calculating Net Capital on Securities Offerings

A broker-dealer settled FINRA charges for inaccurately calculating net capital when participating in firm commitment securities offerings (which were misclassified as best efforts offerings).

According to the AWC, the firm failed to apply the appropriate open contractual commitment charges to its net capital computations which led to overstatements in reported net capital by amounts ranging from approximately $44 million to $949 million across 16 FOCUS reports filed during the relevant period.

FINRA found that the firm's supervisory procedure did not adequately describe how to identify and distinguish firm commitment offerings from best efforts offerings, and that the firm failed to provide guidance for calculating the related net capital impact. Further, FINRA found that the firm failed to take timely corrective action to address these deficiencies.

As a result, FINRA determined that the firm violated SEA Section 17(a) ("Records and Reports"); SEA Rules 17a-3 ("Records to Be Made by Certain Exchange Members, Brokers and Dealers") and 17a-5 ("Reports to Be Made by Certain Brokers and Dealers"); and FINRA Rules 4511 ("General Requirements"), 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").

To resolve the matter, the firm agreed to (i) a censure and (ii) pay a $1,000,000 fine.