BROWSE BY TOPIC
- Bad Brokers
- Compliance Concepts
- Investor Protection
- Investments - Unsuitable
- Investments - Strategies
- Wall Street News
- Investments - Private
- Rules & Regulations
- Bad Advisors
- Boiler Rooms
- Terminations/Cost Cutting
- General News
- Donald Trump & Co.
- Regulatory Sanctions
- Big Banks
Stories of Interest
- Sarah ten Siethoff is New Associate Director of SEC Investment Management Rulemaking Office
- Catherine Keating Appointed CEO of BNY Mellon Wealth Management
- Credit Suisse to Pay $47Mn to Resolve DOJ Asia Probe
- SEC Chair Clayton Goes 'Hat in Hand' Before Congress on 2019 Budget Request
- SEC's Opening Remarks to the Elder Justice Coordinating Council
- Massachusetts Jury Convicts CA Attorney of Securities Fraud
- Deutsche Bank Says 3 Senior Investment Bankers to Leave Firm
- World’s Biggest Hedge Fund Reportedly ‘Bearish On Financial Assets’
- SEC Fines Constant Contact, Popular Email Marketer, for Overstating Subscriber Numbers
- SocGen Agrees to Pay $1.3 Billion to End Libya, Libor Probes
- Cryptocurrency Exchange Bitfinex Briefly Halts Trading After Cyber Attack
- SEC Names Valerie Szczepanik Senior Advisor for Digital Assets and Innovation
- SEC Modernizes Delivery of Fund Reports, Seeks Public Feedback on Improving Fund Disclosure
- NYSE Says SEC Plan to Limit Exchange Rebates Would Hurt Investors
- Deutsche Bank faces another challenge with Fed stress test
- Former JPMorgan Broker Files racial discrimination suit against company
- $3.3Mn Winning Bid for Lunch with Warren Buffett
- Julie Erhardt is SEC's New Acting Chief Risk Officer
- Chyhe Becker is SEC's New Acting Chief Economist, Acting Director of Economic and Risk Analysis Division
- Getting a Handle on Virtual Currencies - FINRA
We seek to provide information, insights and direction that may enable the Financial Community to effectively and efficiently operate in a regulatory risk-free environment by curating content from all over the web.
Stay Informed with the latest fanancialish news.
NEWSLETTERS & ALERTS
Firm Sanctioned Over Inconsistent Documents for Reg D Offerings
[Photo: kc-communications . com]
by Howard Haykin
Trustfirst agreed to a $15K fine to settle FINRA charges that it distributed offering documents in connection with the sale of 3 unregistered offerings that contained typographical errors and were internally contradictory regarding the nature of the offerings’ contingency terms and possible extensions of the contingency termination date.
BACKGROUND. Trustfirst, a Knoxville, TN-based FINRA member firm since 1995, specializes in offering non-registered offerings to customers. The firm currently has approximately 10 registered individuals operating in 2 branch offices. The firm’s Chairman and CEO is also its owner and CCO.
FINRA FINDINGS. Between January 1, 2013, and May 31, 2014, Trustfirst served as underwriter and participated in the sale and marketing of interests in three Regulation D unregistered securities offerings to its investors. In this capacity, Trustfirst was responsible for the preparation and drafting of the offering documents in connection with these investments, including the private placement memorandum (“PPM”), the subscription agreement, and the escrow agreement.
The offering documents for all 3 investments contained typographical errors, and in certain respects were internally contradictory. Specifically, the various offering documents:
- contained inconsistent statements regarding whether the deals were being offered on a contingent "all or none" basis or had minimum and maximum amounts for the contingency to be satisfied;
- contained inconsistencies regarding the date upon which the contingency would terminate, whether such contingency could be extended and, if so, the length of the allowable extension; and,
- failed to provide a sound basis for evaluating the facts relevant to the securities being offered because investors could be confused about certain terms of the offering.
Additionally, Trustfirst prepared a PowerPoint presentation for one of the 3 investments that was attached as an exhibit to the PPM for that offering. However, this presentation failed to provide investors with a sound basis for evaluating the investment because:
- unlike the PPM, the presentation contained no disclosure or discussion of the risks associated with the investment;
- the presentation failed to describe how the estimated yield of 6.5% was calculated (this calculation was provided in another exhibit to the PPM) and, unlike the PPM, failed to make clear that such a return was not guaranteed; and,
- the presentation included a comparison to CD and bond returns that failed to describe the material differences between such investments and the unregistered offering.
FINANCIALISH TAKE AWAY. It's interesting - perhaps surprising - that Trustfirst was cited for documentation errors pertaining to 3 of its Reg D offerings. The firm has been in operation since 1995, it specializes in offering non-registered offerings (according to FINRA), it has hands-on management, and it has no prior relevant disciplinary history. So, on first glance, I'm tempted to chalk up these violations to isolated circumstances. However, what's troubling here is that these deficiencies took place over a 17-month period - perhaps too long to have allowed such deficiencies to continue.
The prolonged presence of deficiencies increases the risk that the firm and its associated persons might adopt a less than desirable corporate culture or work ethic.
This case was reported in FINRA Disciplinary Actions for August 2017.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2014039420301.