FINRA Fines Broker-Dealer $9 Million For Allegedly Attempting To Influence The Market For Offered Securities
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  • FINRA Fines Broker-Dealer $9 Million For Allegedly Attempting To Influence The Market For Offered Securities

    On June 23, 2022, FINRA’s Department of Enforcement announced a settlement in which a broker-dealer agreed to pay $3.6 million in fines, $4.77 million in disgorgement, and partial restitution of over $625,000 to resolve the broker-dealer’s alleged misconduct under the Exchange Act and NASD and FINRA Rules in connection with three IPOs and seven follow-on offerings between June 2016 and December 2018 for which the broker-dealer acted as underwriter, as well as for other supervisory and operational violations.

    FINRA found that the broker-dealer violated Rule 101 of Regulation M, which prohibits participants in a distribution of securities, such as underwriters, from “directly or indirectly, [bidding] for, purchas[ing], or attempt[ing] to induce any person to bid for or purchase, a covered security” during the distribution’s restricted period.  FINRA concluded that the broker-dealer sought to artificially stimulate demand for thinly traded securities it had underwritten by:  (1) expressly conditioning allocations on tie-in agreements; (2) agreeing to solicit customers who received allocations to purchase additional shares in the immediate aftermarket; and (3) threatening to reduce allocations to representatives who would not agree to solicit their customers to participate in the aftermarket.

    The settlement also resolved other open matters concerning the following alleged conduct by the broker-dealer:
    • Negligently omitting to tell investors in two offerings that the issuer failed to timely make required public filings with the SEC, including filing audited financial statements;
    • Inaccurately representing to FINRA that certain warrants the firm received through a 2019 public offering would not be sold, when in fact it sold the warrants;
    • Failing to reasonably supervise a registered representative who, according to FINRA, presented red flags that should have caused the firm to detect that he was falsifying customer information; and
    • Violating Regulation SHO by failing to obtain locates for over 33,000 short sale transactions over a 15-year period ending in April 2020.

    This AWC is notable both because of the significance of the fine amount but also because it serves as a reminder that FINRA’s enforcement mandate does not exclude underwriting activity.
    Categories: Enforcement MattersFINRA

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