Firm Settles FINRA Charges for Anti-Market Manipulation Reporting Failures
A firm settled FINRA charges for failing to timely and accurately submit required anti-market manipulation notifications, related supervisory deficiencies, and inaccurate statements to regulators in a prior Corrective Action Statement.
According to the AWC, during the relevant period, the firm, acting as a manager in distributions of securities subject to Regulation M ("Market Manipulation"), failed to submit, or submitted untimely or inaccurate, restricted period and trading notifications to FINRA in 90 instances. FINRA found that the firm "submitted 37 untimely restricted period notifications" and 41 incomplete notifications, which were deficient because the firm "did not amend the notifications when distribution participants joined the distributions after an initial restricted period notification was submitted." Additionally, the firm submitted multiple trading notifications late, including in connection with nine distributions, in some cases "between eleven and 129 days late." FINRA stated that in one May 2024 offering where the firm acted as a placement agent, it failed to submit both the restricted period and trading notifications despite being entitled to compensation based on the offering’s success.
FINRA found that the firm failed to establish a supervisory system and written supervisory procedures ("WSPs") reasonably designed to ensure compliance with FINRA requirements regarding the timeliness and accuracy of required notifications. FINRA stated that the firm’s WSPs "did not describe any supervisory reviews to ensure notifications were submitted in a timely manner and with accurate information" and lacked procedures addressing "real-time monitoring of the firm’s bidding activity during a distribution’s restricted period." FINRA stated that "[i]n practice, [the firm] did not conduct reviews of its Regulation M -related notifications" to verify their timeliness and accuracy.
FINRA also determined that the firm made inaccurate representations in a Corrective Action Statement submitted following a July 2019 AWC, which had previously censured and fined the firm for similar Regulation M violations. FINRA stated that three of the firm’s representations regarding corrective measures "were untrue at the time they were made," namely that the firm (i) implemented substantive Regulation M training for compliance personnel, (ii) engaged a compliance consulting firm to review its practices, and (iii) retained outside counsel to develop updated supervisory procedures. FINRA said the firm had not taken those steps.
FINRA concluded that the firm violated FINRA Rules 5190 ("Notification Requirements for Offering Participants"), Rule 3110 ("Supervision") and Rule 2010 ("Standards of Commercial Honor and Principles of Trade").
The firm agreed to (i) a censure, (ii) a $400,000 fine (of which $185,000 is payable to FINRA), and (iii) an undertaking requiring a registered principal to certify within 90 days that the firm has remediated the issues and implemented a reasonably designed supervisory system.