FINRA (Financial Industry Regulatory Authority) publishes a monthly review of disciplinary actions taken against both firms and individuals. These disciplinary actions are useful tools to look for trends in violations and other sanctions. These trends can assist you in identifying weak areas in your Firm’s compliance programs or surveillance. Below is a list of a few recent actions related to unregistered offerings or private placements including links to learn more about each as well as key takeaways.
Due diligence obligations in connection with private offerings- Torch Securities
In summary, Torch Securities failed to establish and maintain WSPs reasonably designed to ensure that it complied with its due diligence obligations. The Firm’s WSP’s required an investigation and a completed due diligence checklist prior to conducting any private placement offering. FINRA noted that the procedures lacked a discussion of red flags. Additionally, on 3 deals, the Firm failed to conduct reasonable due diligence relying, on the issuer representations and review only without an independent component
From this the Firm was censured, fined $17,500 and required to certify that it has implemented supervisory systems and written supervisory procedures (WSPs) reasonably designed to address the deficiencies regarding the firm’s due diligence obligations in connection with private offerings. A lower fine was imposed after considering, among other things, the firm’s revenue and financial resources. The takeaway from this recent action is the importance of Firm’s independent review of offerings (you cannot just rely on the due diligence and review by the issuer), clear procedures that include a discussion of red flags and documentation of reviews completed.
Check out the full report here.
Regulatory Filings- Spire Securities
The Firm violated FINRA Rules 5123 and 2010 by failing to timely file required documents related to private placements sold by its registered representatives. Between February 2018 and September 2019, the required regulatory filings for eight private placements were filed late. From this the Firm was censured, fined $20,000. The takeaway from this action is the importance of creating a process to ensure that required filings are done timely. This includes policies and procedures as well as day to day operations and principal controls.
Check out the full filing here.
Disclosure of Material Issuer Information- BDRIA, Inc. & United Planners’ Financial Services of America
Both Firms, through an investigation into firms that sold GPB Capital Securities, negligently omitted to disclose material information related to the issuer failing to timely make required filings with the SEC, including filing audited financial statements, and/or the reasons why the filings were not timely made in violation of FINRA Rule 2010. The Firm during that time sold several limited partnerships in the offering. From this, both Firms were censured, fined $40,000 and required to pay restitution. The takeaway from this action is that it is important to timely disclose material information related to the issuer and the offering to potential investors prior to allowing admittance into the offering.
Check out the full BDRIA, Inc. filing here.
Check out the full United Planners’ Financial Services of America filing here.
MasterCompliance provides consulting with compliance foundations including private placements and Firm compliance considerations. If you would like to explore additional assistance or services, please contact us.