FINRA's disciplinary actions reported for January 2011 are online. This month's disclosures contain many of the typical cases we generally see such as outside business activities, Form U4 issues, suitability, conversion and selling away. There were also several cases relating to AML (anti-money laundering) rules, taken against both firms and responsible individuals.
In addition to these "routine" types of actions, a few stood out. In a case against one firm and its CCO, FINRA censured the firm and ordered it to pay restitution of $218,400, and suspended the CCO for six months as a principal and fined him $5,000, based on findings that the firm failed to have reasonable grounds to believe a private placement was suitable for any customer, and failed to conduct adequate due diligence of the offering. In another case, a principal of a firm was barred from the industry based on findings that he recommended, sold and approved sales of an offering to customers, without conducting adequate due diligence and without a reasonable basis to believe it was suitable, and without enforcing the firm's procedures relating to the offering.
The area of due diligence in private offerings remains a big concern for the regulators, in light of many private offerings that have failed recently (Medical Capital and Provident Royalties to name a few). And, firms that were involved in those issues are being named in arbitration and civil suits as well. Therefore, if your firm is participating in private offerings, ensuring that appropriate due diligence is completed is critical.