stockbroker arbitrationMcBarron Capital LLC, a broker-dealer headquartered in Greenwich, Connecticut, was charged by Financial Industry Regulatory Authority (FINRA) in a Complaint alleging that the firm failed to supervise suitability determinations pertaining to private placement investments. Department of Enforcement v. McBarron Capital LLC, No. 2015044211103 (Oct. 25, 2016).

According to the Complaint, between January of 2011 and April of 2015, the firm did not adequately supervise determinations for suitability associated with private placements which the firm sold. Apparently, a number of these private placements carrying high risk were sold throughout this time frame, where the firm enabled its registered representatives to be the sole deciders as to whether customers were suitable for such.

The Complaint alleged that the same individuals who were responsible for ascertaining suitability of the private placements for customers were also the individuals who made recommendations for such transactions to customers. There were seemingly no reviews which were conducted via a supervisor or firm principal for the private placement transactions.

The Complaint further stated that Robert DePalo, the firm chief executive officer and chairman, was the owner and manager of the issuers of private placements which the firm had sold, and oversaw activities pertaining to private placements. The firm purportedly failed to create and maintain procedures to address the conflicts of interest presented by DePalo’s situation.

FINRA alleged in the Complaint that the firm did not set forth requirements calling for investigations into the suitability of private placements to be conducted by an independent party. Consequently, the red flags were not discovered regarding odd share price valuations or the significant financial obligations which the issuers owed to DePalo. FINRA claimed that the firm’s inability to reasonably supervise private placements for suitability was violative of FINRA Rules 2010 and 3110, as well as NASD Rule 3010.

FINRA further claimed that the firm’s supervisory failures pertaining to private placements – particularly those which DePalo managed – resulted in the firm’s inability to determine that the products would be suitable for customers. As such, FINRA alleged that the firm’s conduct in this regard was violative of FINRA Rules 2010, 2111, as well as NASD Rule 2310.

FINRA further alleged that the firm did not cooperate with a FINRA investigation. Particularly, the firm allegedly failed to provide FINRA’s Department of Member Regulation with information and documentation that was requested pursuant to a cycle examination. FINRA alleged that the firm violated FINRA Rules 2010 and 8210 as a result.

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