By Christopher Zaffuto, Baker Tilly
The Financial Industry Regulatory Authority (FINRA) is an independent, nongovernmental organization that writes and enforces the rules governing the ethical activities of all registered broker-dealer firms and brokers, examines firms for compliance with those rules, fosters market transparency and educates investors. FINRA monitors approximately 3,800 brokerage firms, 160,000 branch offices and 630,000 registered securities representatives.
To assist investors in choosing an honest and reliable brokerage firm or individual broker, FINRA releases disciplinary and other action reports on a monthly basis, disclosing individuals who have been sanctioned and firms that have been fined. Below are a few findings from the fourth quarter 2019 report to highlight behavior not tolerated by FINRA.
Recently, a firm and its principal were sanctioned for using unbalanced and misleading communication with the public. The principal used his firm email address to send emails concerning a biotechnology company he co-founded to people identified as being invested or involved with biotechnology companies. The firm and principal collectively owned more than 60% of the company’s common stock. The email omitted key disclosures, such as the firm and principal’s ownership interest in the company, and the fact that it had raised approximately $13 million in capital for the company. Additionally, the firm earned more than $1 million in compensation since the company’s inception.