By Howard Haykin

A Minnetonka, MN-based firm agreed to pay a nominal fee and certify that it has enhanced its deficient supervisory system to settle FINRA charges that it failed to fulfill its regulatory and supervisory obligations pertaining to private placements by ... (i) not conducting and documenting reasonable due diligence; and, (ii) not obtaining and recording required customer information. 

DUE DILIGENCE FAILURES.    Between March 2015 and December 2015, the broker-dealer served as a placement agent for a Regulation D private placement offering of securities that raised $2,516,000 – most of which was sold by one of the firm’s registered reps to 24 accredited investors. Yet, after agreeing to participate as a placement agent in the offering, the firm failed to conduct and document a reasonable due diligence investigation. In particular, the firm failed to recognize and investigate contradictory and potentially confusing statements made in the Private Offering Memorandum about material terms of the offering.

CUSTOMER ACCOUNT INFORMATION.    Between June 2012 and October 2015, the firm used a New Account Form that requested each of the required items listed in SEC Rule 17a-3(a)(17) and gathered other specific information with respect to customers' investment profiles. However, the firm failed to obtain and record required information for many of the customers who purchased interests in private placements. Making matters worse, the firm was cited in 2013 for customer account information deficiencies - as a result of a previous FINRA examination.