BROWSE BY TOPIC
- Investor Protection
- Investments - Unsuitable
- Investments - Strategies
- Investments - Private
- Bad Advisors
- Bad Brokers
- Boiler Rooms
- Regulatory Sanctions
- Wall Street News
- Rules & Regulations
- Terminations/Cost Cutting
- Compliance Concepts
- General News
- Donald Trump & Co.
- 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 U5’s Broker Over Outside Business Activities (Or Was it Private Securities Transactions?)
[Image: Stairwell Painting by M.C. Escher]
by Howard Haykin
WHAT WENT WRONG. In September 2014, the broker entered into an agreement with a company to participate in a private offering of its convertible notes. FINRA does not identify the firm, but simply notes that the broker was not otherwise affiliated with this company. [For the record, I surmise that the unidentified company is, once again, Elan Alternative Group.]
- From September through December 2014, the broker marketed the convertible notes offering ("private securities transaction" or "PST").
- The broker introduced a venture capital fund to the company. The VC fund, not a Flying Cloud client, invested $200,000 in the company.
- In January 2015, the broker arranged for an offering to be placed on a crowdfunding website, which raised $150,000 by month-end, including $1,000 invested by the broker, himself.
- The broker received $17,500 from the company for his participation in these investments.
- At no time did the broker provide written notice to, or obtained written permission from, Flying Cloud to participate in these investments.
FINANCIALISH TAKE AWAY. There's plenty of confusion to go around in this case.
- Whether the broker violated FINRA's rules for OBAs and/or PSTs.
- Whether the broker adequately explained to Flying Cloud what services he would provide to Elan Alternative Group.
- Whether the broker understood that ... (i) marketing an issuer's securities, (ii) assisting with an issuer's crowdfunding site, and (iii) making a person investment are all considered participations in PSTs, or private securities transactions.
What's not confusing is FINRA's take on the violations and its sanctions against this broker: $5K in fines, $17.5K in disgorgement of commissions, and a 3-month suspension.
This case was reported in FINRA Disciplinary Actions for January 2019.
For further details, go to ... FINRA Disciplinary Actions Online, and refer to Case #2015045185501.