FINRA Warns Firms to Conduct Due Diligence of Private Placements
FINRA has issued Regulatory Notice 10-22 to its members detailing their due diligence and suitability obligations when recommending Regulation D offerings (private placements). FINRA reminds its members that the securities laws impose a due diligence obligation on broker-dealers recommending securities. In the Notice, FINRA provides a list of due diligence practices used by industry participants including a review of the issuer’s (a) governing documents, financial statements, affiliates, and customers; (b) business prospects; and (c) assets. FINRA also reminds firms of their suitability obligation, which goes beyond merely determining whether the investor is qualified under the terms of the offering.
OUR TAKE: FINRA has provided a due diligence list. Although FINRA states that single checklist is not possible, firms should make certain to include the listed items in their due diligence investigation.