On January 6, 2015, FINRA released its 10th annual Regulatory and Examinations Priorities Letter in which it identified key areas of focus for FINRA investigations for 2015. Since the approval of FINRA Rule 5123 on June 7, 2012, firms have been required to file private placement materials for review by FINRA. As a result of FINRA’s review of filed private placement materials, FINRA has identified several shortcomings that it says will be a focus for its investigations in 2015:
Inadequate Due Diligence and Suitability Analysis: FINRA says that its review of private placement materials indicates that in some cases firms are engaging in due diligence that does not satisfy their established procedures and that is insufficient to allow the broker-dealer to perform a suitability analysis and make a recommendation to a customer.
Problems with Contingency Offerings and Escrow Procedures: According to FINRA, “In a number of instances, an offering’s terms were amended and a rescission offer was not properly conducted. In other instances, broker-dealers participating in an offering with a contingency failed to either establish escrow procedures or had deficient procedures such as not employing an independent bank as the escrow agent.”
