Recent FINRA enforcement actions suggest that FINRA is actively pursuing its 2013 regulatory priority and indicate the types of violations that are likely to draw the SRO’s attention, including:

  • Disclosing investment objectives that exceed or fail to accurately capture the objectives stated in the offering documents;
  • Making unsubstantiated or exaggerated claims, or statements that promise investment success;
  •  Making unwarranted performance projections;
  • Failing to adequately disclose risk;
  • Providing materials with contradictory information;
  • Failing to provide a sound basis for evaluating the provided information; and
  • Violating applicable general solicitation rules.

With the SEC’s recent adoption of Rule 506(c) (allowing for general solicitation in private placements made in reliance on Rule 506 of Regulation D) and the eventual adoption of SEC rules implementing Title III of the JOBS Act (creating an exemption from registration for crowdfunding offerings), FINRA seems likely to continue, if not increase, its concerted effort to enhance the policing of private placements. As such, broker-dealers must remain mindful of applicable private placement rules and diligent in their preparation of offering documents.

For more information on rules regulating private placements and communications with the public, see our client alerts on FINRA Rules 5123 and 2210 and SEC Rules 506 and 144A.

Ryan D. Williams contributed to this article.