The Financial Industry Regulatory Authority says that an increase in complaints about brokers’ roles in private placement offerings led it to publish guidance for firms about their obligations regarding suitability, disclosure and other requirements for selling private placements.

FINRA says that recent examinations and enforcement actions have revealed a significant lack of regulatory compliance in the private placement business.

“An increase in investor complaints regarding private placements, as well as SEC actions halting sales of certain private placement offerings, led FINRA to launch a nationwide initiative that involves active examinations and investigations of broker-dealers engaged in retail sales of private placement interests,” FINRA chairman and CEO, Rick Ketchum, said Tuesday.

“That initiative has uncovered misconduct, including fraud and sales practice abuses. While several enforcement actions have been taken and additional investigations are underway, FINRA is taking this opportunity to remind firms of their substantial duties when engaging in the sale of private placement offerings,” he adds.

The notice details a broker-dealer’s obligation to conduct a reasonable investigation of an issuer and its securities that it recommends in private placements; highlights red flags and supervisory requirements; and suggests practices to help ensure that firms adequately investigate the private placements that they recommend.

IE