A firm settled FINRA charges for violations relating to supervision of suitability standards, representatives' outside business activities ("OBAs"), communications with investors and FINRA filing requirements for private funds.

In a Letter of Acceptance, Waiver and Consent, FINRA found that the firm:

  • did not have a reasonable supervisory system for reviewing the suitability of representatives' recommendations in the sale of inverse and leveraged exchange-traded funds, in violation of FINRA Rule 3110 ("Supervision");
  • hired 15 new registered representatives without evaluating the representatives' disclosed OBAs, in violation of FINRA Rule 3270 ("Outside Business Activities of Registered Persons");
  • distributed private placement materials for three different offerings that contained forward-looking financial metrics, including references to multiples on investment capital, the internal rate of return, and the average cash-on-cash percentage return over a 15-year period, in violation of FINRA Rule 2210 ("Communications with the Public");
  • belatedly filed materials for five private offerings and did not file any required materials for three other offerings, in violation of FINRA Rule 5123 ("Private Placements of Securities"); and
  • did not terminate an offering or return investor funds when it had not raised the minimum contingency required by the private placement memoranda ("PPMs"); instead, the firm continued to solicit investments under a modified PPM that improperly extended the termination date and reduced the minimum contingency, in violation of SEA Rule 10b-9 ("Prohibited Representations in Connection with Certain Offerings").

FINRA found that the firm's conduct also violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade").

To settle the charges, the firm agreed to (i) a censure, (ii) a $160,000 fine and (iii) restitution of $370,161.39 plus interest.

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