- within Intellectual Property, International Law, Litigation and Mediation & Arbitration topic(s)
A firm and its general securities principal settled FINRA charges for disclosure and supervisory violations on outside business activities and private securities transactions. FINRA found that the firm failed to (i) review its representatives' outside business activities ("OBAs"), (ii) timely amend representatives' Forms U4 to disclose OBAs, (iii) submit required offering documents, and (iv) design a supervisory system regarding OBA rules and due diligence and filing obligations for private placements.
In a Letter of Acceptance, Waiver, and Consent, FINRA found, among other things, that the firm's written supervisory procedures ("WSPs") did not require representatives to provide written notice of their OBAs, nor did its WSPs address the firm's requirement to review OBAs to determine whether the activity should have been determined a private securities transaction. Further, the firm failed to review certain disclosed OBAs and the principal failed to provide factors used to determine (i) whether an OBA was appropriate and (ii) whether an OBA was properly characterized. FINRA found that the firm and the principal failed to timely update Forms U4 for a number of representatives with respect to those OBAs.
Additionally, for the sale of three private placements, the firm failed to (i) submit a private placement memorandum, term sheet or offering document and (ii) evidence the due diligence review of such private placements. FINRA found that the firm's WSPs also did not address filing requirements under FINRA Rule 5123 ("Private Placements of Securities") or how the firm's review of information collected with respect to private placements should be conducted or memorialized.
As a result, the firm and its principal violated FINRA Rules 3270 ("Outside Business Activities of Registered Persons"), 3110 ("Supervision"), 2010 ("Standards of Commercial Honor and Principles of Trade") and 5123, as well as FINRA By-Laws, Article V, Section 2 ("Application for Registration").
To settle the charges, the firm agreed to a censure and the principal agreed to a two-month suspension. The firm and principal also agreed to pay a $50,000 fine, $40,000 from the firm and $10,000, joint and several, from the firm and the principal.
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