Earlier this month, FINRA officials announced that Regulation D
private placements and non-traded real estate investment trusts (REITs) would be FINRA’s
top areas of focus this year. The increased scrutiny is largely the result
of the self-regulatory agency’s concerns over the lack of due diligence
many independent broker-dealers have exhibited and continue to exhibit
in the sale of private placements and non-traded REITs. (For more information, see our
Feb. 10 post on the announcement.)
In January, National Securities Corp., a broker-dealer that sold approximately
$3.7 million of Provident Royalties LLC private placement notes, received
notice from FINRA that the agency planned to bring an enforcement action
against the firm (“Finra goes after yet another B-D in private-placement
crackdown,” InvestmentNews, Feb. 15, 2011).
As reported in the InvestmentNews article, FINRA plans to bring an action
against National Securities Corp. for “violations of product suitability
rules, e-mail supervision rules, and standards of commercial honor and
principles-of-trade rules” in the sale of a “private placement.”
The Provident Royalties private placement notes (along with those issued
by Medical Capital Holdings) have contributed to the closure or FINRA
sanction of over two dozen broker-dealers in the last year or so, ever
since the SEC brought a complaint against Provident Royalties in 2009.
The complaint alleged that the oil and gas private placements issued by
Provident Royalties were fraudulent. The firm has since declared bankruptcy.
National Securities Corp. did not offer a comment on the impending action
to the InvestmentNews staff. The firm’s profile on FINRA’s
BrokerCheck tool has been updated to reflect the notice.