View Whole SectionText only Print Print Manager Link
Previous Next
  Versions
(3 versions)
 

III. Distributions of Securities [Version up to Mar. 22, 2011]

Corporate Financing Rule—Failure to Comply With Rule Requirements

FINRA Rules 2010 and 5110

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section

Failure to Comply with Filing Requirements

Unfair or Unreasonable Underwriting Compensation
1. Percentage and dollar amount of unreasonable compensation as compared to maximum amount of underwriting compensation considered fair and reasonable (see FINRA Rule 5110.
Failure to Comply with Filing Requirements

Fine of $2,500 to $25,000.

Unfair or Unreasonable Underwriting Compensation

Fine of $5,000 to $50,000.1
Failure to Comply with Filing Requirements

In egregious cases, consider suspending the firm with respect to any or all activities or functions for five business days and/or suspending the responsible individual in any or all capacities for a period of 30 business days to two years.

Unfair or Unreasonable Underwriting Compensation

Individual

Consider suspending the responsible individual in any or all capacities for a period of 30 business days to two years.

In egregious cases, consider barring the responsible individual.

Firm

Consider suspending the firm with respect to any or all activities or functions for five business days.

In egregious cases, consider suspending the firm for a longer period of time.

1 As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.


Engaging in Prohibited Municipal Securities Business

MSRB Rule G-371

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Position in firm of person making contribution.
2. Position of official to whom the contribution was made.
3. Nature of prohibited municipal securities business in which respondent engaged.
4. Whether the respondent firm knew or should have known of contribution.
5. Relative size of the contribution.
Firm

Fine of $10,000 to $50,000.2

Responsible Individual

Fine of $10,000 to $50,000.3
In cases involving several prohibited municipal underwritings, or reckless conduct on the part of the firm, consider suspending the firm from engaging in municipal securities business with prohibited issuers for up to two years beyond the time proscribed by MSRB Rule G-37 and consider suspending the responsible individual(s) from acting as municipal principal(s) for a similar time period.

In egregious cases, consider prohibiting the firm from engaging in any future business with prohibited issuers or with the involved official and barring the responsible individual(s) in any or all principal capacities.

1 MSRB Rule G-37 prohibits dealers from engaging in municipal securities business with an issuer within two years after any contribution to an official of such issuer made by the dealer, any municipal finance professional associated with the dealer, and any political action committee controlled by the dealer or any municipal finance professional.

2 As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.

3 As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.


Escrow Violations—Prohibited Representations in Contingency Offerings; Transmission or Maintenance of Customer Funds in Underwritings

FINRA Rule 2010; SEC Rule 15c2-4 and SEC Rule 10b-9

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Amount of commissions and/or other underwriting compensation retained by the respondent.
2. Whether the respondent was affiliated with the issuer or other entity to which customer funds were released.
3. Whether subscription funds were released from escrow before the contingency occurred.
SEC Rule 15c2-4
4. Extent to which the customer funds were exposed to risk or loss.
SEC Rule 10b-9
5. Extent of failure to satisfy the contingency described in the prospectus or offering circular.
6. Whether the respondent used non-bona fide sales to give the false appearance that the contingency was satisfied.
SEC Rule 15c2-4

Fine of $1,000 to $10,000.

SEC Rule 10b-9

Fine of $5,000 to $50,000.
SEC Rule 15c2-4

In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or the responsible individual in any or all capacities for up to 30 business days.

SEC Rule 10b-9

In egregious cases, consider suspending the firm with respect to any or all activities or functions and/or the responsible individual in any or all capacities for up to two years. In appropriate cases, consider requiring a rescission offer.

Restrictions on the Purchase and Sale of Initial Equity Public Offerings Violations

FINRA Rules 2010 and 5130

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Nature of restricted account(s) involved. Consider whether the account is absolutely or conditionally restricted.
2. Whether the respondent has any interest in the restricted account(s).
3. Whether the case involves bona fide dispute regarding normal investment practice, proportion of allocation or substantiality of allocation.
4. Whether the respondent engaged in misconduct for the purpose of improperly conferring financial benefit on another person or entity.
If the respondent is the restricted buyer, a fine of $1,000 to $15,000.1

If the respondent is the selling member firm and/or an associated person of the firm, a fine of $1,000 to $15,000.2

If the restricted buyer is not subject to FINRA jurisdiction, "transaction profit" may be added to the fine for the selling member and/or associated person. In egregious cases or those with evidence of willful misconduct, consider a higher fine of up to three times the "transaction profit."
Individual

Consider suspending the respondent representative (buyer or seller) in any or all capacities for up to 30 business days.

In egregious cases, consider a longer suspension (of up to two years) or a bar.

Firm

Consider suspending the respondent firm with respect to any or all activities or functions for five to 10 business days.

In egregious cases, consider a longer suspension (of up to two years) or an expulsion.

Unregistered Securities—Sales of

FINRA Rule 2010 and Section 5 of the Securities Act of 1933

Principal Considerations in Determining Sanctions Monetary Sanction Suspension, Bar or Other Sanctions
See Principal Considerations in Introductory Section
1. Whether the respondent attempted to comply with an exemption from registration.
2. Whether the respondent sold before effective date of registration statement.
3. Share volume and dollar amount of transactions involved.
4. Whether the respondent had implemented reasonable procedures to ensure that it did not participate in an unregistered distribution.
5. Whether the respondent disregarded "red flags" suggesting the presence of unregistered distribution.
Fine of $2,500 to $50,000.1

In egregious cases, consider a higher fine.
Individual

In egregious cases, consider a lengthier suspension in any or all capacities for up to two years or a bar.

Firm

In egregious cases, consider suspending the firm with respect to any or all activities or functions for up to 30 business days or until procedural deficiencies are remedied.

1. As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit. Where respondent is the beneficial owner or an affiliate of the owner of the unregistered securities, also consider including all sales proceeds or other benefits received by the respondent directly or indirectly (possibly by requiring a rescission offer to the investors).


Previous Next