Midtown Partners of New York, NY, a FINRA member since 12/6/00, agreed to settle FINRA charges that it failed to adequately detect and prevent the misuse of material, nonpublic information by employees through an information barriers system. FINRA notes that the firm, with 8 registered reps, derives a significant portion of its revenue from the sale of private placements, including private investments in public equity ("PIPEs").  The Firm has no relevant disciplinary history. FINRA Findings and Allegations of Wrongdoing. From ~ 1/1/06 through ~ 9/5/08, Midtown Partners failed to have a supervisory system reasonably designed to detect and prevent the misuse of material, nonpublic information by employees.

• Firm did not have WSPs addressing the creation or distribution of a watch list, nor did it maintain any list of this nature.
• Firm maintained a restricted list, but entries to the list left much to be desired:  (i) securities were added to the list in a haphazard manner, often after the issuer had signed a private placement agent agreement with the firm;  (ii) the list did not reflect when a security was added or deleted from the list;  (iii) the list did not identify the contact person.Firm failed to adequately monitor employee trading outside the firm for transactions in the restricted-list securities.
• Firm failed to obtain annual attestations from some employees and did not ensure that it was receiving the required duplicate confirmations and account statements for employees' outside brokerage accounts.
• Because the firm failed to maintain a watch list, failed to update its restricted list on a timely basis, and failed to obtain confirmations and account statements for employee accounts, it could not reasonably monitor its employees’ trading for transactions in restricted or watch-list securities.
• Firm lacked procedures to restrict the flow of material, nonpublic information and routinely shared restricted-list information with unregistered individuals who were firm owners, and occasionally shared with these unregistered individuals the details of investment banking contracts.  Consequently the firm’s procedures were not reasonably designed to prevent violation of securities rules prohibiting insider trading.

Midtown Partners was fined $30,000. For further details, go to:  [FINRA AWC #2008012242901, 6/28/11] and [Disciplinary Actions for August 2011].