The Financial Industry Regulatory Authority (FINRA), in an acceptance, waiver, and consent action (AWC), sanctioned brokerage firm LaSalle St. Securities, LLC (LaSalle) over allegations that staff found certain deficiencies with respect to: 1) a private placement offering involving Seat Exchange Corporation where LaSalle failed to exercise adequate due diligence before allowing a broker to recommend the offering to four investors; 2) a private offering by Revitalight Operators, LLC, LaSalle distributed a private placement memorandum to potential investors that did not include material facts and used a flawed methodology for projecting return on investment; 3) an offering of Platinum Wealth Partners, Inc. (PWP) by one of its brokers the firm failed to supervise; and 4) the fact that LaSalle allowed its representatives to send consolidated reports to its customers but failed to adequately supervise those reports.
LaSalle has been registered with FINRA as a broker-dealer since 1976, has 232 registered representatives, 107 branch offices, and its principal place of business is in Chicago, Illinois. LaSalle has various business lines.
FINRA alleged that in April 2010, a broker with the initials “PL” sought the firm’s approval to recommend the purchase of shares in Seat Exchange Corporation, a Regulation D private placement to four customers. Seat Exchange had only one director, who also owned 21.5% of the company and the placement agent for offering was Chicago Investment Group (CIG). CIG was also an affiliated with Seat Exchange. According to FINRA, LaSalle had supervisory procedures requiring that all appropriate due diligence efforts on behalf of any private placement offering are undertaken and documented or that we obtain sufficient documentation from a third party that they have undertaken sufficient due diligence.
FINRA found that LSCM, a third-party, reviewed the Seat Exchange offering including the private offering memorandum (POM). Certain shortcomings were noted, including that the POM failed to explain what the company did or intended to do; the POM lacked financial statements and projections, conflict-of-nterest disclosures, management discussion and information, and a capitalization table; and Seat Exchange had a one-person board of directors.
FINRA found that other obvious flaws were apparent including that the POM stated on one page that Seat Exchange was not involved in any legal proceedings but then disclosed a lawsuit against Seat Exchange seeking3481,000 in damages on a different page. LSCM advised LaSalle that before approving the Seat Exchange offering substantial changes and additional disclosures about Seat Exchange’s business plan, financial condition and capital structure were needed.
In addition, FINRA found that LaSalle did not disclose that both RL and CIG had been sanctioned by FINRA because they had sold shares of a private placement offering pursuant to an offering document that contained material misrepresentations or omissions. Nonetheless, FINRA alleged that after receiving LSCM’s analysis, LaSalle’s Investment Committee decided, without any further investigation, to permit a broker, on a very limited basis, to recommend the offering to four customers.
As a result, FINRA concluded that LaSalle failed to exercise sufficient due diligence in investigating the Seat Exchange offering. To be continued…