FINRA’s Sanction of Broker/Dealers for Lack of Conducting Reasonable Due Diligence

Last month FIRNA aanounced sanctions against 8 firms and 10 individuals for selling private placements without conducting a reasonable investingation into the merits of teh companies whose private placements they were selling.  The link to the news release is:

This is after FINRA sanctioned 2 firms and 7 individuals in April for failure to conduct reasonable investingations into the merits of the companies whose private placements were they were selling.  The link for that news releases is:

Both of these actions are the result of the sales of private placements tied to Medical Capital Holdings, Inc.,  Provident Royalties, LLC.,  and DBSI, Inc.

FINRA has made it very clear that it expects broker/dealers that engage in placing private placments that it expects them to either conduct or obtain a due diligence review under the guidelines of FINRA Regulatory Notice 10-22, and that it intends to come down very hard on those firms that fail to do so.  In most cases the firms that fails to obtain a due diligence review under the FINRA 10-22 guidelines are being ordered to pay restitution equal to the amount of the investor losses,  plus fines for the failure to obtain the due diligence review.  These penalties can easily put a smaller firm out of business.

We think that it is important, that broker/dealers understand the importance and significance of the FINRA 10-22 Due Diligence requirements.  It is only a matter of time that plaintiff’s attorneys start to go after the failure to conduct a FINRA 10-22 review in order to win damages awards against broker/dealers for client losses.  Obtaining a due diligence review from an independent third-party firm is a smart way for broker/dealers to protect themselves from plaintiff’s lawyers and help avoid FINRA regulatory actions.

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.