Firm Settles FINRA Charges for ETF and Private Placement Failures

A firm settled FINRA charges for failing to supervise recommendations of non-traditional exchange-traded funds and failing to file private placement offering materials.

According to the AWC, the firm’s written procedures prohibited purchases of inverse or leveraged exchange-traded funds ("NT-ETFs") in customer accounts. FINRA found that the firm did not enforce this prohibition or implement alerts or exception reports to identify such transactions, resulting in registered representatives recommending the products to retail customers. FINRA found that the firm failed to establish, maintain, and enforce a reasonable supervisory system concerning recommendations of NT-ETFs.

FINRA also determined that a registered representative sold "two private placement offerings issued by the firm's parent company" to investors and provided them with private placement memoranda that had not been filed with FINRA’s Corporate Financing Department. FINRA found that the firm failed to file offering materials with the regulator for these offerings.

FINRA concluded that the firm violated Exchange Act Rule 15l-1 ("Regulation Best Interest") and FINRA Rules 3110 ("Supervision"), 5122 ("Private Placements of Securities Issued by Members") and 2010 ("Standards of Commercial Honor and Principles of Trade").

The firm agreed to (i) a censure, (ii) a $40,000 fine, and (iii) an undertaking requiring a senior management principal to certify the remediation of the identified issues.