Securities Lawyers Blog
Brokerage firm Rives, Leavell & Co. (Rives) was recently sanctioned by the the Financial Industry Regulatory Authority (FINRA) over allegations that the firm disseminated to the investing public 29 advertisements including newspapers, brochures, offering documents, and pastor letters related to church bond investments that failed to comply with FINRA’s advertising rules. FINRA determined that these communications generally failed to adequately explain or highlight the risks associated with the investments, contained misleading language, or failed to explain investment terms sufficiently.
Rives is a broker-dealer based in Jackson. Mississippi, employs twelve registered brokers and has no branch office locations. NASD Conduct Rule 2210(d)(1) establishes content standards for public communications. All member communications with the public are to be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular security or service. Further, FINRA prohibits members from omitting any material fact. In addition, NASD Rule 2210(d)(1)(B) prohibits claims that are false, exaggerated, unwarranted or misleading. FINRA has reminded firms that members must consider the nature of the audience to which the communications will be directed and that different levels of explanation or detail may be necessary depending on the audience to which a communication is directed.
During the first review period FINRA examined, the agency found that Rives disseminated two newspaper advertisements, five brochures, one pastor letter, one mailed advertisement, and two offering documents that contained improper content. For example, FINRA found that a number of the communications promoted the bonds’ high interest rates but failed to disclose various risks associated with the investment including that the bonds were unrated by a rating agency, were potentially illiquid and might result in a loss of principal. The communications also failed to explain and contrast the difference between different interest options on the bonds.