FINRA Lawyer Blog
The head of Massachusetts’ state securities regulatory body, Secretary of the Commonwealth William F. Galvin, issued a public statement announcing an inquiry into the practices of some of the top local broker-dealers related to private placement investments.
These funding rounds of securities, which are not sold through a public offering, but rather, presented to a select group of investors, commonly involve a higher risk of fraud.
The list of companies that have already received an inquiry letter from Galvin’s office includes, among others, Arthur W. Wood, Bolton Global Capital, Advisory Group, Santander Securities, LPL, U.S. Boston Capital, and BTS Securities.
Galvin revealed that about one in six agents in these firms have disciplinary incidents on record. As often happens, the agents with a track record of repeated violations are still active, and often cater to a population of vulnerable clients, including seniors.
In line with federal watchdog agencies’ recent vow to protect seniors from bad players in the industry, the Massachusetts regulator said firms need to make sure that deals are being made, “to benefit the investor, not the broker.”
“Individuals with a history of disciplinary actions magnify the risk of unsuitable sales in connection with private placements,” Galvin added.
The Secretary of the Commonwealth’s Office initiated its probe into disciplinary reports at Massachusetts broker-dealers in 2016. After looking at over 200 firms and assessing their disciplinary practices, regulators discovered that nearly one in five agents hired over a period of 30 months had at least one disciplinary incident on their records.
Shockingly, a staggering 90 percent of the agents with disclosure incidents on file had never been placed under enhanced supervision, which should have been a standard practice to minimize the risk of further violations.
As a result of its ongoing probe, the Secretary of the Commonwealth will increase its scrutiny of agents dealing in private placements, which Galvin described as, “risky investments that reward the salesperson handsomely with high commissions.”
“While my office is actively policing agent misconduct and diligently working to keep bad actors out of the commonwealth, it is necessary for the firms which employ agents with disciplinary history to closely supervise their sales activities,” the regulator commented.
Rob Herskovits is a New York based securities lawyer with a national practice focused on defending broker dealers and other financial industry participants in regulatory actions. CONNECT WITH A HERSKOVITS PLLC LAWYER