Liberty Associates, Inc. of New York, New York, was censured and fined $3,500.00 by Financial Industry Regulatory Authority (FINRA) after consenting to findings that the firm had failed to establish, maintain, and enforce adequate supervisory procedures concerning private placements. Letter of Acceptance, Waiver and Consent, No. 2013035239001 (Dec. 29, 2015).
According to the AWC, from May 2009 though April 2013, the firm did not establish, maintain and enforce a reasonable supervisory system, including written supervisory procedures, or supervise the private placement activities conducted by a former stockbroker operating out of its Santa Fe, New Mexico branch office. Specifically, the firm failed to have supervisory systems in place concerning its roles performed and responsibilities assumed when acting as a placement agent to certain real estate private placement offerings conducted out of its Santa Fe, New Mexico branch.
FINRA found that the firm failed to have adequate supervisory procedures pertaining to performing due diligence of private placement offerings and determining the accreditation status of the investors in such offerings. FINRA found that by failing to implement such supervisory protocol, which would ensure compliance with NASD and FINRA Rules, the firm violated Rules 3010(a) and Rule 2010.
FINRA also found that during the review period, the firm had allowed a stockbroker who was operating out of its Santa Fe, New Mexico office to use a non-firm email account for business-related emails, which were not being copied or forwarded to the firm. FINRA found that by the firm’s failure to both retain and conduct review of emails that the stockbroker had sent during that period, the firm violated Section 17(a) of the Exchange Act and SEC Rule 17a-4, NASD Rule 3110 and FINRA Rules 4511 and 2010.
Selling away, also known as private securities transactions or undisclosed outside business activities, occurs when a stockbroker engages or participates in the sale of securities to investors outside of the formal approval of the securities firm with whom they are associated.
As a general matter, stockbrokers are only permitted to engage in the solicitation or sale of investments and investment related products approved by their firm. However, quite frequently, stockbrokers solicit, participate, or directly engage in the sale of typically unregistered securities or investments without the approval and outside of the auspices of their firm. These investments may take on many forms, and may include the recommendation of an outside money manager, or a hedge fund, which may sometimes turn out to be a Ponzi scheme. Sometimes these outside investments may include off-shore securities, insurance trusts, stocks or ownership interests in small businesses, startup ventures, corporate debentures, mortgage notes, private placements, promissory notes, oil & gas interests, real estate partnerships, pre-IPO shares, and a variety of other investments.
Securities brokerage firms have a duty to supervise their brokers and the sales practices of their brokers, and to review customer statements for, among other things, evidence of suitability, unauthorized trading, or excessive activity. FINRA Conduct Rule 3010 specifically provides that each member shall establish and maintain a system to supervise the activities of each stockbroker and associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with the Rules.
Guiliano Law Group
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