In Feb., FINRA announced that monitoring Regulation D private placements and non-traded real estate investment trusts were the top two areas of focus for the organization's enforcement department. Last week, FINRA released details on the crackdown's first series of actions, including the fines and sanctions levied upon various broker-dealers and executives ("Finra in Reg D crackdown," InvestmentNews, April 8, 2011).
Two broker-dealers, Workman Securities Corp. and Askar Corp., received the most attention in the article. Workman Securities, which sold more than $9 million of Provident Royalties private placements to clients, was fined $700,000. The money will be used to pay restitution to the firm's clients. Askar, which made $578,000 in commissions on the sale of private placements from DBSI Inc., was fined $45,000 for failure to conduct proper due diligence.
In fact, all of the fines and sanctions announced by FINRA last week focused on the failure of executives and broker-dealers to conduct proper due diligence on the private placements sold to clients by their firms.
In a statement quoted by InvestmentNews, Brad Bennett, Finra executive vice president and chief of enforcement, said: "Senior officials at these firms failed to fulfill their responsibilities to customers by not conducting reasonable investigations of these unrelated offerings, especially in light of multiple red flags suggesting liquidity concerns, missed interest payments and defaults."
In addition to the fines against the firms, FINRA permanently barred or temporarily suspended seven executives: Robert Vollbrecht, Workman's former president; David William Dube, owner of defunct Peak Securities Corp.; Timothy Cullum, former CEO of now-defunct Cullum & Burks Securities Inc.; Steven Burks, former president of now-defunct Cullum & Burks Securities Inc.; Jeffrey Lindsey, former executive of Capital Financial Services Inc.; Bradley Wells, former executive of Capital Financial Services Inc.; and Jay Lynn Thacker, former chief compliance officer at Meadowbrook Securities LLC.
While not mentioned in the sanctions released last week, National Securities Corp. is also in hot water with FINRA over the sale of private placements. Actions against additional broker-dealer firms are expected in coming months.