FINRA Censures Capital-Raising BD for Failing to Collect Info about Potential Investors 

FINRA censured and fined a broker-dealer for failing to collect sufficient client data from individuals investing in a company that retained the firm to raise capital.  FINRA charges that the potential investors were “customers” of the BD even though the company retained the firm, and the firm limited its activities to explaining the risks of the offering and ensuring that the potential investors were accredited.  Although the firm obtained subscription documents, which included basic identifying information, the firm did not obtain employment status, annual income, net worth or investment objectives.  FINRA asserts that the firm “did not understand that the individuals were its customers under the securities laws,” including the BD books and records and the anti-money laundering rules.

OUR TAKE: We suspect that many firms engaged in capital raising (including private equity and hedge fund firms) may not understand that FINRA considers potential investors to be “customers.”

http://disciplinaryactions.finra.org/viewdocument.aspx?DocNB=36727