FINRA News

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Updated: New Account Application Template

FINRA recently updated the New Account Application Template to reflect FINRA’s new suitability rule. The template is a voluntary model that was designed for firms to use when creating or modifying their own account applications.

Some of the significant features of the template include:

  • Instructions and other information presented in plain-English,
  • Highlights of key disclosures, and
  • Incorporation of related investor education information.

This voluntary template can be customized, so that firms can modify the form to meet their own branding, business practices and operational requirements. Keep in mind that use of the voluntary template in whole or in part does not guarantee compliance with or create any safe harbor with respect to FINRA Rules, the federal securities laws or state laws.

Contact Evans & Kob PC for experienced regulatory and legal counsel regarding broker-dealer operations counsel, including drafting new account forms and customer agreements, or any broker-dealer and investment adviser, arbitration, regulatory or securities matter at info@eklawpc.com.

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Both FINRA and SEC Bring Actions Regarding Due Diligence on Unsuccessful Private Placements

On April 7, 2011, both FINRA and the SEC announced actions both broker-dealers and supervisory personnel in connection with sales of private placement offerings without adequate due diligence. The actions relate to private placement offerings of Medical Capital Holdings, Inc. (MedCap), Provident Royalties and DBSI – all entangled in various levels of litigation, SEC enforcement or arbitration.

In summary, the FINRA Acceptance, Waiver and Consent involve allegations that the firms, by or through its principals, failed to have reasonable grounds to identify and understand the inherent risks of the offering and the suitability of the offerings for any of their customers, including conducting effective due diligence to investigate potential “red flags,” and therefore could not have a reasonable basis to sell the offerings. The SEC alleges that the firm and its principal failed to perform reasonable due diligence on numerous private placements, while simultaneously receiving significant amounts in due diligence fees, that turned out to Ponzi schemes and offering fraud and thereby violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder.

As to FINRA, we have already seen previous actions in regards to due diligence and our firm expects to see more investigations and audits of member firms in regards to both private placements and other non-traded direct investments, including REITs. See FINRA’s targeted examination request regarding “Sale and Promotion of Non-Traded REITs” and the 2011 Examination Priorities Letter. Contact Evans & Kob PC for experienced assistance responding to any regulatory examination or sweep, modifying your written supervisory procedures, due diligence review of a particular product, investment, issuer or money manager or any other regulatory or arbitration related legal advice at info@eklawpc.com.

Link: Broker-Dealer Advisory Services

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