FINRA has been engaged in a “stealth sweep” of firms’ untimely deliveries of mutual fund and ETF prospectuses that has resulted in formal disciplinary proceedings against twelve firms since 2011, and a total of over $5 million in fines. Oddly, FINRA has not posted the “Targeted Examination Letter” that initiated the sweep, has not issued any guidance about the sweep’s findings beyond the press release that announced the first of the eight disciplinary proceedings, nor done anything else to publicize the results and lessons of this initiative to the broker-dealer community.
So we will do it for them.
THE STATUTORY OBLIGATION -
Section 5(b)(2) of the Securities Act of 1933 requires an issuer to deliver a physical copy of a prospectus before completing the sale of a security. Rule 15c6-1 effectively requires issuers to deliver the prospectus within three business days of the trade date.
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