A broker-dealer settled FINRA charges for failing to establish and maintain sufficient supervisory systems reasonably designed to achieve compliance with disclosure requirements relating to private placements for contingency offerings.
In a Letter of Acceptance, Waiver and Consent ("AWC"), FINRA found that while the broker-dealer's written supervisory procedures addressed the need for disclosures in contingent offering documents, such procedures did not identify (i) who was responsible for reviewing such disclosures to ensure the correct disclosures were included in each offering document or (ii) how a review of each offering document should be carried out. In addition, FINRA alleged that the broker-dealer did not implement procedures to (i) review the work of the outside counsel it hired to create the content of the offering documents and required disclosures to investors, or (ii) ensure that the necessary disclosures were actually included by its outside counsel. FINRA said that the broker-dealer also failed to sufficiently train its own registered representatives in providing the required disclosures in the offering documents. As a result of its failures, the broker-dealer violated FINRA Rule 3110 ("Supervision") and FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade").
To settle the charges, the broker-dealer agreed to (i) a censure, (ii) a $30,000 fine and (iii) provide FINRA with a certification that it has implemented remedial efforts to address the issues identified in the AWC within 60 days of Notice of Acceptance of the AWC.
Commentary
This is the second recent enforcement action the SEC has brought in connection with contingent offers; see the recent prior action.
Primary Sources
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