Finra warns dealers to properly investigate placements prior to sales

By Devika Patel

Knoxville, Tenn., April 20 - The Financial Industry Regulatory Authority issued a reminder Tuesday to broker-dealers that they must conduct a reasonable investigation of the issuer and the securities they recommend in Regulation D private placement offerings.

Regulation D transactions are not exempt from the antifraud provisions of the federal securities laws, the authority said.

Broker-dealers must meet suitability requirements and must comply with advertising, supervisory and record-keeping rules, Finra said.

Recent problems uncovered in private placement offerings have resulted in firms being sanctioned for providing memoranda and sales materials to investors that contained inaccurate statements or omitted information needed to make informed investment decisions.

In addition to investigating the issuer and its securities, a broker-dealer must have reasonable grounds to believe that the investment is suitable for each participating investor and must ensure that the investor fully understands the risks involved in the investment.

Finra noted that it has brought three enforcement actions in recent months involving private placement offering violations.

Questions may be directed to Joseph E. Price, senior vice president, corporate financing/advertising (240 386-4623); Paul Mathews, director, corporate financing department (240 386-4639); or Gary Goldsholle, vice president and associate general counsel, office of general counsel (202 728-8056).

Finra is an independent regulator for securities firms doing business in the United States and is based in Washington.

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