Broker pays FINRA fees for mismanagement of escrow account

United States: Broker-distributor pays FINRA fees for mismanagement of escrow account

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A broker and its principal in securities paid FINRA’s fees for the flawed escrow account proceedings while acting as the placement agent for an emergency offer.

In a letter of acceptance, waiver and consent, FINRA found that, while acting as an investment agent for an issuer, the broker and its principal did not (i) deposit the investors’ funds with a bank instead of using a law firm as an agency escrow, (ii) use the standard escrow agreement in accordance with its procedures and (iii) correctly calculate the minimum contingency required by including an inauthentic investment to reach the threshold. FINRA also found that, when acting as placement agent for another issuer, the broker and principal failed to obtain timely positive investor consent to extend or return funds when the offer did not meet its minimum contingency.

Following its findings, FINRA determined that the broker and principal violated section 15 (c) (2) of the Exchange Act (“Registration and Regulation of Brokers and Brokers”), SEA Rules 15c2 -4 (“Transmission or maintenance of Payments received in the context of subscriptions”) and 10b-9 (“Representations prohibited in the context of certain offers”), and FINRA Rule 2010 (“Commercial honor standards and principles of commerce” ).

FINRA also found that the broker’s written procedures did not provide the necessary guidance on escrow procedures. As a result, FINRA determined that the broker had violated FINRA Rules 3110 (a) and 3110 (b) (“Supervision” and “Written Procedures”).

To pay the fees, the broker agreed to (i) censorship and (ii) a fine of $ 30,000. The Director agreed to (i) a one month suspension from acting as Director for any member of FINRA and (ii) a fine of $ 5,000.

Primary sources

  1. FINRA AWC: Newbridge Securities Corporation and Bruce Howard Jordan

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