Growth Capital Services Inc. a securities broker dealer headquartered in San Francisco California has been censured and fined $35,000.00 by Financial Industry Regulatory Authority (FINRA) based on findings that it made misleading statements to prospective investors regarding private placements. Letter of Acceptance Waiver and Consent No. 2019060721801 (Jan. 15, 2021).
According to the AWC, Growth Capital Services’ primary business involved the sale of private placements. Between June of 2018 and June of 2020, misleading information and documents relating to private placements had been either distributed to prospective investors or made available to them. Prospective investors received offering documents, presentations and other materials concerning seven private placement offerings.
The regulator indicated that Growth Capital Services’ communications failed to provide prospective investors with an adequate basis to evaluate the private placements. In the first instance, one of the offerings did not contain adequate risk disclosures in its private placement memorandum. This precluded investors from learning that the investment was illiquid, speculative and could result in their total loss of principal.
In the second instance, information that was provided to prospective investors had presented two offerings as less risky. Information regarding lower risk investments including bonds and publicly traded securities had been disclosed. However, there was no disclosure of the differences between the less risky investments and the private placement offerings.
A third instance involved an offering being described as having enhanced liquidity. FINRA revealed that the investment was actually illiquid. A fourth instance concerned a misleading description of the use of investor funds. That description made it seem as though investors would be making direct investments in technology companies. The offering did not permit that.
The regulator also noted that there were projections of performance contained in five of the offering materials. Effective and annualized yields were projected in four offering documents. The firth document projected that some members could expect to receive a 34.5 percent IRR.
FINRA determined that Growth Capital Services violated FINRA Rules 2010 and 2210.