[ by Larry Goldfarb ]

In what many may consider a surprising twist, FINRA has issued its second targeted sweep letter in September, this time focusing on Non-Traded REIT Communications.  Earlier this month, the targeted exam covered a review of Alternative Trading Systems.

Traditionally, September is Sweep Month at FINRA, a time when the SRO gathers information and carries out investigations.  Sweep information is used to focus the regulator's routine exams and pinpoint regulatory responses to emerging issues.  The number of firms included in targeted exams varies, ranging from several firms to dozens of firms. 

FINRA claims to carefully select the participating firms, usually basing its decision on a variety of factors, including:  (i) level and nature of business activity in a particular area;  (ii) customer complaints and regulatory history;  (iii)  and, prior examination findings.   Selected firms receive a Targeted Examination Letter that identifies what information and documents FINRA examiners will require. 

If your firm or client was lucky enough to have received a Dear 'Targeted Firm' Letter,  then your friends at Compliance Insights wish you all the best of luck.  We also suggest that you can skip reading this post - it's nothing you haven't seen and proceed directly to the FINRA Sanction Guidelines.  It may come in handy during this examination.

Everyone else, please continue reading to see what you're missing.  And now, the Letter ...

Targeted Examination Letters

 September 2012

Re: Spot-Check of Non-Traded REIT Communications

NASD Rule 2210(c) (7) states that each FINRA firm's advertisements and sales literature are subject to a periodic spot-check procedure. Pursuant to this procedure and in accordance with FINRA Procedural Rule 8210, the Advertising Regulation Department requests that you provide the following:

1. All advertisements and sales literature, as defined in NASD Rule 2210(a), used from January 1, 2012 through June 30, 2012, concerning Non-Traded Real Estate Investment Trusts (“NTR”). This request is for general marketing communications as well as those on behalf of specific NTRs¹. Please note that this request excludes communications that have already been filed with the Advertising Regulation Department. Please provide both paper and electronic copies of the communications. 
    
2. The completed “Approval and Recordkeeping” Excel spreadsheet attached to this letter that lists each communication identified in Item 1 above, including:

• a description of each communication provided pursuant to Item 1of this letter,
• the dates of distribution of each communication,
• the manner in which it was distributed,
• the name and title of the registered principal who gave the approval and
• the date that the approval was given. 
   

1. Evidence that each advertisement or item of sales literature provided pursuant to Item 1 of this letter received written approval by a registered principal prior to use, as required by NASD Rule 2210(b)(1). 
    
2. The offering document for any specific NTR discussed in the communications submitted pursuant to Item 1. 
    
3. The portion of your firm’s written supervisory procedures concerning the production, approval and distribution of NTR communications in effect during the subject time period (January 1, 2012 through June 30, 2012). 
    
4. The completed “RESPONSE TO SPOT-CHECK REQUEST” form attached to this letter. 
    

Please provide the information noted in Items 1 through 6 no later than October 2, 2012.

RESPONSE TO SPOT CHECK REQUEST

Please check applicable response(s):

____  All Non-Traded REIT advertisements and sales literature used during the time period of January 1, 2012 – June 30, 2012 are attached.

____  No Non-Traded REIT advertisements and sales literature of any kind were used during the time period of January 1, 2012 – June 30, 2012.

____  All Non-Traded REIT advertisements and sales literature used during the time period of January 1, 2012 – June 30, 2012 were filed with the Advertising Regulation Department, or have been attached.

COMMENTS:
_____________________________________________________________________________________

REGISTERED PRINCIPAL'S SIGNATURE: _________________________________________________

REGISTERED PRINCIPAL’S NAME:   ________________________ 

REGISTERED PRINCIPAL’S TITLE:   ________________________

DATE: __________