This article continues the examination of the findings by The Financial Industry Regulatory Authority (FINRA), in an acceptance, waiver, and consent action (AWC), concerning LaSalle St. Securities, LLC (LaSalle) private placement deficiencies. FINRA also found that LaSalle served as the placement agent for a 2009 private placement offering by Revitalight Operators, LLC. The private placement memorandum (PPM) stated investors would be entitled to a 9% “preferred return” on their outstanding investments prior but that this preferred return was not guaranteed and might never be paid. FINRA found that LaSalle was responsible for the PPM’s contents. The PPM contained a summary of financial projections which FINRA found contained assumptions that the total net return over six years would be $2.050 million and that investors’ capital contributions would be returned in the fiftieth month. The PPM stated that investors could receive a 27.13% annual return on investment. However, FINRA determined that the projected annual return were calculated using a flawed methodology.
Finally, FINRA alleged that member firms that using consolidated reports are communications with the public and must be clear, accurate, and not misleading. Firms should have systems in place to ensure that valuations provided regarding customer assets held at the firm are consistent with the firm’s official account statement distributed to the customer. The firm should also take reasonable steps to accurately reflect information regarding outside accounts and assets. If a firm is unable to adequately supervise the use of the reports then the firm must prohibit dissemination of the reports.
FINRA found that LaSalle had procedures in place governing consolidated reports. The procedures provided that the CCO or specifically designated principals, will review the consolidated reports to ensure adherence to all applicable rules. Despite the procedures, FINRA found that LaSalle had an inadequate system in place because the firm did not ensure that all representatives actually followed the proscribed procedures. FINRA determined that LaSalle’s training was limited to blast emails to brokers advising them that consolidated statements needed to be submitted to the home office for review as correspondence.
FINRA found that during 2013, there were approximately 24 brokers who issued consolidated reports without adequate principal or compliance review. For instance, FINRA found that LaSalle did not require that brokers send back-up data to its compliance department to verify the accuracy of the information. Thus, the compliance personnel did not have the information needed to conduct a substantive review of the consolidated reports to ensure that the valuations were accurate and not misleading.
Investors who have suffered losses from recommended private placements may be able recover their losses through arbitration. The attorneys at Gana LLP are experienced in representing investors in cases where brokerage firms fail to supervise their representatives trading in client accounts. Our consultations are free of charge and the firm is only compensated if you recover.