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Securities Compliance Sentinel Analysis of cutting-edge securities industry issues

Guess Who Is Watching Your Private Placements

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The dog-days of summer certainly did not apply to FINRA when it initiated eight disciplinary proceedings against member firms and registered representatives over private placements.  This heightened interest should serve as a warning to all broker-dealers to ensure that their house is in order before permitting private placements through the firm. 

Unfortunately, the regulatory scheme involving private placements only suggests that FINRA will likely bring more and more cases considering that you must provide your offering documents to FINRA within fifteen days of your first sale.  In other words, FINRA will be able to take an earlier look at your private placement to determine if something is amiss. 

These disciplinary proceedings can lead to suspension or bars of those involved in the offering, as well as those who were supposed to be supervising the registered representatives engaged in the offering.  FINRA is also looking for red flags such as private placements in highly hyped fields, a sudden surge in a brokerage’s business, or a brokerage established to promote a certain company’s offerings.   buyholdsell.jpg

So what is a firm to do in this time of enhanced scrutiny?  The most important thing for all brokerages is Regulation D, also known as a safe harbor for private placements.  Firms must be certain that it and its representatives follow the strictures of Regulation D and, if you do not know what you need to do, consult with a lawyer or compliance person who does.  Although complying with Regulation D does not guarantee protection from FINRA, it will certainly put the odds in your favor.

* photo from freedigitalfotos.net