FINRA Fines LaSalle Securities For Private Placements
The Financial Industry Regulatory Authority (“FINRA”) and the Securities and Exchange Commission require that broker-dealers perform adequate due diligence before letting a registered representative recommend private placements made pursuant to Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). FINRA listed due diligence of private placements as a concern in its 2015 Regulatory and Examination Priorities). FINRA’s recent case against LaSalle St. Securities LLC (“LaSalle”) demonstrates that this due diligence obligation is mandatory even for private placement offerings made to accredited investors.
FINRA found certain deficiencies that occurred at various times during a four-year period in connection with the offerings of four issuers. The findings stated that with respect to private placement offerings, LaSalle Securities failed to exercise adequate due diligence before allowing a registered representative to recommend the offering to four accredited investors and distributed a private-placement memorandum to potential investors that did not include certain material facts and relied on a flawed methodology for projecting return on investment.
FINRA’s findings include that the firm failed to adequately supervise a representative’s participation in an offering and failed to ensure that the offering documents were appropriately filed with FINRA. Independently, a second representative of the firm participated in private securities transactions away from the firm, which the firm did not adequately supervise.
The findings also stated that the firm allowed its representatives to send consolidated reports to its customers, but failed to adequately supervise those reports. Training was limited to blast emails to registered representatives advising them that consolidated statements needed to be submitted to the home office for review as correspondence.
According to the findings, LaSalle failed to require that registered representatives send back-up data to its compliance department to verify the substantive accuracy of the data consolidated reports sampled in this investigation were not found to be inaccurate or misleading, the firm failed to ensure compliance with its own procedures as well as pertinent rules relating to consolidated reports.
LaSalle was censured and fined $175,000. Without admitting or denying the findings, LaSalle consented to the sanctions and to the entry of findings. Broker-dealers should review FINRA guidelines to ensure compliance with due diligence requirements and supervisory procedures when participating in private placement offerings in order to avoid FINRA enforcement actions.
For further information, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real South, Suite 202 North, Boca Raton, FL, (561) 416-8956, or by email at [email protected]. This securities law Q & A is provided as a general or informational service to clients and friends of Hamilton & Associates Law Group, P.A. and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that prior results discussed herein do not guarantee similar outcomes.
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