Fund Distributor Barred From Industry for Blowing Regulation D and Failing to Conduct Due Diligence

A Registered Rep that distributed private funds was barred from the industry and agreed to pay approximately $300,000 in disgorgement and interest for failing to comply with the private placement requirements of Regulation D and failing to conduct proper due diligence so as to avoid making misleading statements to investors. The SEC alleged that the Respondent did not comply with the private offering exemption under Regulation D because he supervised sales personnel who cold-called hundreds of prospects from a pre-purchased lead list. The SEC also faulted the Respondent for failing to review the issuer’s financial statements which indicated that the funds could not have yielded the returns promised to investors.

OUR TAKE: Fund distributors must have some sort of pre-existing relationship with prospects before soliciting them. The SEC is also stressing the obligation of distributors to conduct due diligence and not just rely on the claims and marketing materials of fund sponsors.

http://www.sec.gov/litigation/admin/2009/33-9012.pdf