Firm Settles FINRA Charges for Private Placement Violations

A firm settled FINRA charges for distributing unregistered securities, failing to address red flags in private placements and misleading sales communications.

According to the AWC, the firm participated in the sale of a private placement offering for which no exemption from registration was available. FINRA found that the firm failed to respond to red flags, including the use of falsified identity documents by an intermediary associated with the offering. Further, FINRA found that the firm's procedures lacked guidance on how to evaluate issuers, document diligence efforts and address red flags associated with private placement offerings.

In addition, FINRA found that the firm distributed sales materials for a private placement that did not disclose material risks such as the issuer's financial instability and lack of operational history and that the materials contained misleading claims about expected profitability, liquidity and the issuer's position.

Further, FINRA found that the firm failed to timely file required documentation for five private placement offerings. FINRA found that the firm submitted four filings late and omitted required amendments for one offering, failing to update the private placement memorandum to reflect material changes.

FINRA concluded that the firm violated FINRA Rules 3110 ("Supervision"), 2010 ("Standards of Commercial Honor and Principles of Trade"), 2210 ("Communications with the Public"), 5123 ("Private Placements of Securities") and Exchange Act Rule 15l-1 ("Regulation Best Interest").

To settle the charges, the firm agreed to (i) a censure and (ii) pay a $70,000 fine.