Ross, Sinclaire & Associates, LLC, a broker-dealer headquartered in Cincinnati, Ohio, was censured and fined $214,545.00 by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that the firm, inter alia: made material omissions regarding municipal offerings; failed to conduct adequate due diligence; and failed to supervise investment offerings. Letter of Acceptance, Waiver and Consent, No. 2015043591701 (Dec. 15, 2016).
According to the AWC, Ross, Sinclaire & Associates was the underwriter and financial advisor to the County PPC for its offerings in 2011 and 2015. Particularly, in April of 2011, investors were offered lease revenue note anticipation renewal notes which totaled $2,200,000.00, where the notes had a maturity of May 1, 2015. In April of 2015, investors were offered lease revenue bond anticipation taxable renewal notes totaling $2,120,000.00. Apparently, these 2015 notes had a maturity of May 1, 2016.
The AWC revealed that material facts were not disclosed concerning the private placement offerings. Particularly, conflicts of interest pertaining to the firm’s ownership were undisclosed in both offerings, as were beneficial interests associated with the offerings. Evidently, the 2015 offering did not disclose that Sinclaire and ARI (a company owned by Sinclaire) stood to gain financially from the offering.
Further, the 2015 offering reportedly did not detail how revenues would be generated, and failed to disclose the financial condition of ARI – a company which was germane to the revenues required to be generated for the note to be repaid to investors. FINRA found that the firm’s material omissions were violative of MSRB Rule G-17.
FINRA found that the firm lacked written supervisory procedures for purposes of ensuring that material information was properly disclosed to prospective investors in the municipal securities offerings. FINRA found that the firm’s conduct was violative of MSRB Rule G-27 based upon the firm’s failure to ensure that customers knew of conflicts of interest pertaining to the offerings.
Additionally, the AWC stated that between February of 2014 and May of 2015, twenty municipal offerings had been sold by Ross, Sinclaire & Associates, LLC; however, the firm lacked any evidence which confirmed that due diligence had been conducted regarding the offerings. FINRA noted that the firm failed to show that offering documents were analyzed to ensure that they were accurate, and that a FINRA registered principal had properly overseen the due diligence process.
The firm evidently failed to specify within its written supervisory procedures how any supervisory review pertaining to due diligence would be documented in order to show that it actually took place. FINRA found that the firm’s conduct in this regard was violative of MSRB Rules G-27 and G-17.
The AWC further revealed that from November of 2011 to February of 2014, the firm did not create reasonable supervision systems regarding Regulation D offerings. Particularly, between December of 2011 to March of 2013, three offerings were conducted by Ross, Sinclaire & Associates in the firm’s Centerville, Ohio branch, in which the firm’s customers purchased investments. Apparently, there was no evidence that due diligence had been conducted and reviewed by a FINRA registered principal. FINRA found that the firm’s conduct in this regard was violative of NASD Rule 3010.
Further, the firm’s communications concerning the offerings were not deemed by FINRA to be balanced and fair, or capable of allowing investors to have a reasonable basis to assess the offering’s details. Particularly, conflicts of interest pertaining to the employment of the registered representatives had not been disclosed. In addition, in seventy-four customer cases, which accounted for eighty-four of the Regulation D offering purchases, there was no basic information concerning the customers obtained for review. Apparently, the firm did not retrieve sufficient information to confirm whether the Regulation D offerings had been suitable for customers. Consequently, the firm’s conduct was found to be violative of NASD Rule 3010, FINRA Rule 2010, 2111, 4512(a)(2), as well as Rule 17a-3(a)(17).
FINRA Public Disclosure reveals that since November 16, 2004, Ross, Sinclaire, & Associates has been named in ten regulatory events and one customer initiated investment related arbitration claim concerning allegations of the firm’s misconduct.
Guiliano Law Group
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