The Financial Industry Regulatory Authority (FINRA) recently sanctioned broker Michael A. Barina (Barina) over allegations that Barina failed to conduct reasonable due diligence into the offering a private placement security. In addition, FINRA alleged that the broker commingled certain funds.
Barina first became registered with FINRA in 1999. Barina was registered from November 13, 2009, through November 14, 2011, with Coker & Palmer, Inc. (Coker & Palmer). In November 2011, Barina became registered with Aegis Capital Corp. until May 2013. Thereafter, Barina was registered with Merrimac Corporate Securities, Inc. until October 2013.
Brokerage firms and brokers are responsible for conducting due diligence on all securities recommended by a broker. The due diligence requirement is heightened where the investment recommendation is a private placement offering or other type of non-public offering where there is no public information available and brokerage firm is acting as the underwriter of the securities.
A firm’s due diligence obligation stems from FINRA Rule 2310 that states that a brokerage firm must have reasonable grounds to believe that a recommendation to purchase, sell, or exchange a security is suitable for the customer. FINRA has stated that a brokerage firm has a “special relationship” with a customer from the fact that in recommending the security, the brokerage firm represents to the customer that a reasonable investigation has been made.
FINRA Notice to Members 10-22: Regulation D Offerings, states that a critical part of determining suitability for private placements is the obligation to conduct a reasonable investigation of the issuer and the securities being offered. In order to conduct a reasonable investigation, brokerage firms must exercise a high degree of care in investigating including and independent verification of the issuer’s representations and claims.
FINRA found that between March 1, 2010 and May 31, 2010, Barina recommended to four customers to invest in HSGO, a private-placement investment pool. At the time of Barina’s recommendations, FINRA alleged that Barina did not have a sufficient understanding of HSGO’s investment strategy to make a reasonable basis suitability recommendation. FINRA found that Barina did not understand that HSGO could invest up to 25 percent of its assets in a single security and that HSGO could engage in options trading. FINRA found that Barina’s lack of understanding of the properties of the private placement caused his recommendation of HSGO to the customers to be unsuitable. As a result Barina violated NASD Rule 2310 and FINRA Rule 2010.
FINRA also alleged that Barina commingled funds by accepting a personal check in the amount of $124,000 from another registered representative. For these violations, FINRA imposed a three month suspension from association, in any capacity, with any FINRA member firm and a fine in the amount of $12,500.
The attorneys at Gana LLP are experienced in investigating claims concerning misrepresentation of private placement securities. Our attorneys can help you detect and uncover suspicious activity in your accounts. Our consultations are free of charge and the firm is only compensated if you recover.