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Broker-Dealer Fined for Lapses in Research and Investment Banking
Dawson James Securities of Boca Raton, FL, agreed to a $75K fine to settle FINRA charges that it had supervisory failures relating to research and private offerings and that those supervisory failures led to substantive rule violations in both areas.
BACKGROUND. Dawson James Securities, a FINRA member since 2004, is headquartered in Boca Raton. The firm acts as an introducing broker effecting securities transactions on a fully disclosed basis through 2 unafflliated clearing firms. The Firm operates 5 branch offices and has approximately 50 registered individuals. Most of its revenue is generated through investment banking and retail sales of emerging biotechnology and healthcare companies. As part of its business, the Firm provides research analyst coverage on multiple companies in the healthcare and biotechnology industry.
FINRA FINDINGS IN THIS CASE. From 2009 through 2016, Dawson James failed to adopt and implement adequate internal controls and supervisory procedures (WSPs) as they pertained to equity research conducted by the firm. As a result, the firm failed to ensure that:
- research analysts did not participate in efforts to solicit investment banking business;
► e.g., the Director of Research participated in a video advertising the firm’s investment banking services.
- research reports contained all required disclosures.
- research work done by the firm’s Director of Research – who authored most of the Firm's research - was reviewed and supervised by someone other than the Director, himself.
As pertaining to the firm’s private offering business, FINRA noted violations for the period, October through December 2013, during which time the firm participated in a best efforts, part-or-none contingency private offering. FINRA found that:
- the firm failed to confirm that bona-fide sales were used to calculate the minimum contingency requirement in the Offering.
► therefore, the Firm was unaware that the minimum contingency had been meet using sales made to insiders.
- the firm failed to note that the Offering's issuer had not designated an independent bank escrow agent for the receipt of investor funds.
► nevertheless, the firm transferred subscriber funds that had been collected for this offering to the violative escrow account.
This case was reported in FINRA Disciplinary Actions for April 2017.
For details on this case, go to … FINRA Disciplinary Actions Online, and refer to Case #2015044393901.