A broker-dealer and its general securities principal settled FINRA charges for deficient escrow account procedures while acting as a placement agent for a contingency offering.
In a Letter of Acceptance, Waiver and Consent, FINRA found that, while acting as a placement agent for an issuer, the broker-dealer and its principal failed to (i) deposit investor funds with a bank instead using a law firm as the escrow agency, (ii) use the standard escrow agreement per its procedures and (iii) properly calculate the required minimum contingency by including a non-bona fide investment to meet the threshold. FINRA also found that, when acting as a placement agent for another issuer, the broker-dealer and principal failed to obtain timely positive consent from investors to extend or return funds when the offering did not meet its minimum contingency.
As a result of its findings, FINRA determined that the broker-dealer and principal violated Exchange Act Section 15(c)(2) ("Registration and Regulation of Brokers and Dealers"), SEA Rules 15c2-4 ("Transmission or Maintenance of Payments Received in Connection with Underwritings") and 10b-9 ("Prohibited Representations in Connection with Certain Offerings"), and FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade").
FINRA also found that the broker-dealer's written procedures failed to provide necessary guidance as to escrow procedures. As a result, FINRA determined that the broker-dealer violated FINRA Rules 3110(a) and 3110(b) ("Supervision" and "Written Procedures").
To settle the charges, the broker-dealer agreed to a (i) censure and (ii) $30,000 fine. The principal consented to a (i) one-month suspension from acting as principal for any FINRA member and (ii) $5,000 fine.
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