The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm EDI Financial, Inc. (EDI Financial) alleging that the firm’s business involved the sales of private placement offerings. From approximately January 2008 through November 2014, FINRA alleged that a substantial portion of EDI Financial’s revenue came from sales of private placements. But despite the importance of private placement sales to EDI Financial’s bottom line FINRA alleged that the firm failed to have adequate policies and procedures to supervise the sales of its private placement activities.
EDI Financial has been a registered broker-dealer since 1986. The firm conducts a general securities business which includes the sales of private placements and mutual funds. The firm has 70 brokers that operate out of its 22 branch offices, with headquarters in Irving, Texas.
FINRA found that EDI Financial failed to adopt and implement a supervisory systems reasonably designed to achieve compliance with the firm’s suitability obligations for the solicitation and sale of private placements. For example, FINRA determined that the firm lacked adequate written procedures concerning the what concentration of a customer’s assets could be allocated to private placements. Additionally, FINRA alleged that the firm did not effectively monitor customers’ exposure to private placements.
In addition, FINRA alleged that the firm lacked adequate supervisory systems for conducting due diligence on private placements. For instance, according to FINRA the firm’s written supervisory procedures did not provide adequate guidance on how due diligence was to be documented by the firm and consequently it was found that the firm failed to sufficiently document due diligence conducted on private placements.
FINRA also alleged that with respect to EDI Financial’s mutual fund sales, in 2013, the firm failed to supervise mutual fund switches and maintained inaccurate records concerning mutual fund switches for certain customers. FINRA found that the firm’s written supervisory procedures required that the firm obtain a letter from the customer acknowledging the consequences of the switch. However, according to FINRA, in 2013, EDI Financial did not consistently obtain switch letters when customers switched between mutual funds. Moreover, when the firm became aware that switch letters had not been obtained for certain customers, one of the firm’s brokers attempted to obtain the customers’ signatures on the switch letters but dated the documents as the date of the original transaction rather than the date the forms were actually signed.
Finally, between approximately July 2013 and August 2014, EDI Financial failed to maintain adequate written procedures concerning internal inspections of non-branch locations. As a result, FINRA alleged that EDI Financial failed to timely inspect certain non-branch locations.
Investors who have suffered losses may be able recover their losses through securities arbitration. The attorneys at Gana LLP are experienced in representing investors in cases of brokerage firms failure to supervise their representatives in their dealings with clients. Our consultations are free of charge and the firm is only compensated if you recover.