FINRA ASSERTS BROAD JURISDICTION IN CLASS B SUITABILITY ACTION
FINRA fined a foreign-based broker-dealer $1.1 Million for unsuitable sales of Class B shares of an offshore fund to non-US investors. FINRA asserted its jurisdiction through the firm’s US entity headquartered in New York. FINRA made its usual claim in Class B cases i.e. that the customers “would have financially benefited” from purchasing Class A shares especially since the BD had negotiated reduced front-end charges with several fund companies. FINRA explained that BDs have a suitability obligation even when recommending offshore funds to non-US investors.
OUR TAKE: Much like the SEC has done in recent months, FINRA is asserting its extra-territorial jurisdiction. Once you become a FINRA member, FINRA will seek to regulate all activities including those that do not involve US securities, markets, or investors.