A Look at the Penalties for Broker/Dealer Failure to Obtain Due Diligence Under FINRA 10-22
In December of last year, in a blog post titled “FINRA’s Sanction of Broker/Dealers for Lack of Conducting Reasonable Due Diligence” I wrote about recent FINRA sanctions of broker/dealers for failure to conduct reasonable due diligence in accordance with FINRA 10-22. Coral Capital Partners, which conducts due diligence in accordance with FINRA Regulatory Notice 10-22, has been monitoring the enforcement actions in this area, and I thought it would be a good idea to take a closer look at the fines and penalties FINRA sanctioned these firms with.
The broker/dealers that were sanctioned under FINRA 10-22 include:
- Next Financial Group, Inc. of Houston, Texas was ordered to pay $2 million in restitution and fined $50,000. It should be noted that Next Financial’s Vice-President was suspended as a principal and ordered to pay a $10,000 fine.
- Investors Capital Corporation of Lynnfield, MA was ordered to pay roughly $400,000 in restitution to customer who sustained losses.
- Garden State Securities of Redbank, NJ. and the owner of the firm were ordered to pay restitution of $300,000 to customers who sustained losses. Additionally the owner of the firm was suspended for 20 days in any capacity, and an additional 2 months in a supervisory capacity as well as fined an additional $25,000. The firm’s chief Compliance Officer was suspended for one month in a principal capacity and fined $10,000.
- Capital Financial Services of Minot, ND. was ordered to pay $200,000 in restitution to customers who sustained losses. Additionally a former principal was fined $10,000 and suspended in a principal capacity for 6 months.
- National Securities Corporation of Seattle, WA was ordered to pay $175,000 in restitution to customers who sustained losses, and the Director of Syndication and Alternative Investments was suspended in a principal capacity for 6 months and fined $10,000.
- Equity Services, Inc. of Montpelier, VT. was censured and fined $50,000 and ordered to pay nearly $164,000 in restitution to customers who sustained losses. Additionally a Senior Vice President for Securities Operations was fined $10,000 and suspended from association with any FINRA regulated firm in any capacity for 30 days. A registered representative was fined $30,000 and suspended from association with any FINRA regulated firm in any capacity for 30 days.
- Securities America, Inc. of La Vista, NE. was censured and fined $250,000 in connection with its failure to conduct or obtain due diligence on private palcements that it sold to customers.
- Newbridge Securities Corporation of Fort Lauderdale, FL. was fined $25,000 for its failure to conduct or obtain due diligence. Additionally the former Chief Compliance Officer was suspended in any principal capacity for six months and fined $15,000.
- Workman Securities, Corp. of Minnesota was ordered to pay $700,000 in restitution to customers.
- Askar Corporation of Minnesota was fined $45,000 for its failure to conduct or obtain due diligence.
It should be noted that in several of the actions above, FINRA ordered restitution to be paid to customers to compensate for losses; and in several cases individuals where fined and suspended as well. For smaller broker/dealers these fines and restitution orders can easily put them out of business, and for many individuals a fine or suspension can easily be the end of a career.
If a syndicate member or company that is seeking to raise funds isn’t wiling or able to undergo a FINRA 10-22 due diligence review, then maybe it isn’t a private placement that should be participated in.
If you have any questions about the above blog post, please feel free to visit our web site, www.coralcapital.com and check out we have to offer. Feel free to contact us if you have any questions. We can be reached at 404-816-9220 and are always willing to speak with you.
About Coral Capital Partners
Coral Capital Partners is an independent consulting and advisory firm focused on companies and participants in the lower and middle markets. We partner with our clients to provide cost effective solutions to real world issues and situations. Our experienced team brings a diverse set of skills that allows us to service a wide variety of needs. Our area of services and expertise focuses on bringing services and solutions to our clients that are normally only available to much larger firms.
Coral Capital Partners, Inc. provides services to Investment Banks, Private Equity Funds, investors, and both privately held and publicly traded companies, as well as various stakeholders in those organizations. This has included international public companies with operations on three (3) continents to smaller privately held domestic companies.
Our experience in the areas of corporate advisory, due diligence reviews, and regulatory compliance allows for a cost effective and efficient solution to the issues at hand. Please feel free to contact our offices to see how we may be of assistance.