Torch Securities LLC, a securities broker dealer headquartered in Sugar Land, Texas, has been censured and fined $17,500.00 by Financial Industry Regulatory Authority (FINRA) based upon findings that Torch Securities failed to supervise private placement transactions recommended to customers. Letter of Acceptance, Waiver, and Consent No. 2019062311702 (May 6, 2022).
According to the AWC, from January 2019 to November 2019, the written supervisory procedures of Torch Securities required investigations and due diligence on private offerings before stockbrokers were permitted to recommend the offerings to customers. The AWC states that Torch Securities’ review of private offerings was supposed to cover the management of the issuer, the plan and prospects of the business, and the use of proceeds raised from investors in the offerings.
However, the securities broker dealer’s procedures were silent regarding what was to be done if a problem came up in the due diligence process. There was no specific procedure used for due diligence, which meant that those supervisors had no guidance on how to conduct due diligence reasonably before the private placements were recommended to customers.
FINRA states that between January 2019 and November 2019, three private placement offerings had been reviewed, approved, and recommended by Torch Securities to customers. The regulator found that there was no adequate investigation of those offerings before customers were advised to invest.
Torch Securities depended mostly on the information and the documents that the issuers provided rather than depending on its own independent analysis of the issuers. Because of this, Torch Securities failed to discover third-party debts of companies on the balance sheets of the issuers. It did not uncover that investor funds were used to pay those debts or that, with some offerings, the issuers had expired business licenses. It overlooked that the offering documents contained contradictions relating to valuations and projected revenues.
FINRA found that Torch Securities violated FINRA Rules 2010 and 3110.
