BD Fined $1.4 Million for Failing to Deliver Prospectuses
A large broker-dealer agreed to pay a $1.4 Million fine for failing to deliver prospectuses to clients. FINRA alleged that during an 18-month period, the firm failed to deliver prospectuses in 6000 of 22,000 transactions. According to FINRA, the firm failed to ensure that its outside vendor delivered the documents and inform its operations department of the need to send prospectuses. FINRA noted that the SEC changed the prospectus delivery rule in 2005 but physical delivery of prospectuses is still required for mutual funds and ETFs.
OUR TAKE: Failure to deliver disclosure documents also exposes the BD to potential liability for failing to ensure that a client has received full disclosure of a product’s features and risks. Product sponsors should also conduct due diligence to ensure that their distribution channels properly deliver their disclosure documents because a firm can’t use the prospectus as a defense when the investor hasn’t received it.