A broker-dealer settled FINRA charges for supervisory failures and disclosure inaccuracies in its equity and debt research reports, in violation of FINRA Rules 2241(c) (on content and disclosure in equity securities research reports) and 2242(c) (on content and disclosure in debt/fixed income research reports).
In a Letter of Acceptance, Waiver, and Consent, FINRA found, among other things, that the broker-dealer failed to disclose, between both types of reports:
- whether it expected shortly to receive or had received in the past 12 months compensation for investment banking services from a subject company;
- whether it managed a public offering of securities for a subject company during the prior 12 months;
- whether a subject company was a client in the preceding 12 months;
- the compensation it received for activities other than investment banking services in the previous 12 months;
- the definition of each rating, and within each rating, (i) the percentage of subject companies and (ii) the percentage of subject companies to which it provided investment banking services; and
- the historical ratings for a previously rated subject company.
FINRA also found that the broker-dealer had no mechanisms in place to confirm the completeness and accuracy of its disclosures. FINRA stated that the broker-dealer did not enforce its written supervisory procedures, which required it to submit certain information to its research department to confirm compliance. As a result, FINRA determined that the broker-dealer violated FINRA Rules 3110 ("Supervision") and 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the broker-dealer agreed to (i) a censure and (ii) a $175,000 fine.
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