Brokerbank Securities Inc. a FINRA member brokerage firm headquartered in Minnetonka Minnesota has been censured and fined by Financial Industry Regulatory Authority (FINRA) based on the firm’s consent to findings that it failed to conduct reasonable due diligence in a private placement. Letter of Acceptance Waiver and Consent No. 2015043584501 (Sept. 10, 2018).
According to the AWC, from March 30, 2015 to December 29, 2015, the firm was listed as the private placement agent for a securities offering of CL Corporation securities. The AWC stated that a total of $2,516,000.00 had been raised by CL as a result of the offering; $2,220,000.00 coming from twenty-four accredited investors who were sold the securities by Brokerbank.
The AWC stated that Brokerbank neglected to adequately execute its due diligence of CL Corporation after having agreed to be CL Corporation’s placement agent. The firm also failed to store any documentation relating to the investigation into the issuer. Critically, the AWC stated that the firm did not identify and scrutinize possibly conflicting statements that had been made in a confidential private offering memorandum concerning the terms of the offering. Consequently, FINRA found that the firm violated FINRA Rules 2010 and 3110.
Further, FINRA stated that from June 15, 2012 to October 1, 2015, the firm utilized a new account form that pertained to the establishment of customer accounts. The AWC stated that the firm’s documents requested information concerning the investment profile of the customers; however, the firm neglected to procure and store this documentation for many of the firm’s customers that invested their money in private placements.
The AWC stated that the firm executed transactions in more than twenty of the customer’s accounts without first taking any steps to make sure that the firm procured the new account form signed by the customers. This is not the first time that the firm failed to comply with SEC Rule 17a-3(a)(17); it was warned about its misconduct during a 2013 FINRA examination. Consequently, FINRA found that the firm failed to ensure that the requisite customer documentation was on file; conduct violative of FINRA Rules 2010, 3110, and 4511; and SEC Rule 17a-3.
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