FINRA Slams Broker-Dealers On Private Placements, Again

DBSI, Inc. filed for bankruptcy in 2008. Medical Capital Financial Corp. and Provident Royalties both filed for bankruptcy a year later. Since then, approximately two dozen independent broker-dealers have gone out of business or been sanctioned by regulators for sloppy due diligence and the sale of billions of dollars worth of allegedly fraudulent private placements. Based on a recent FINRA statement, the crackdown isn’t over. It looks like the broker-dealers that are left aren’t out of the woods yet.

According to a recently issued FINRA statement, the SRO issued a substantial number of enforcement actions over the past few months, including an Order requiring Next Financial to pay $2 million in restitution to clients who purchased $20 million worth of three different Provident Royalties private placements.

"Despite the fact that Next received a specific fee related to the due diligence that was purportedly performed in connection with each offering, beyond reviewing the private-placement memorandum for the offerings, [Steven Nelson, vice president of investment products and services] did not perform adequate due diligence on the [Provident] offerings," wrote FINRA in a letter of acceptance, waiver, and consent.

FINRA’s statement also detailed a $250,000 fine to Securities America for the sale of two Provident Royalties private placements. (Securities America also sold $700 million worth of Medical Capital private placements, but the fine was not levied based on those notes.)

InvestmentNews reported that several other firms were hit with FINRA enforcement actions recently, including: Investors Capital Corp., Garden State Securities Inc., Capital Financial Services, National Securities Corp., Equity Services Inc., and Newbridge Securities Corp.


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