The Securities and Exchange Commission and the North American Securities Administrators Association signed an information-sharing agreement as new rules to facilitate intrastate crowdfunding offerings and regional offerings take effect.
The agreement signed by the SEC and NASAA is intended to facilitate the sharing of information to ensure that the new exemptions are serving their intended purpose of facilitating access to capital for small businesses. Under the memorandum of understanding (MOU), federal and state securities regulators will be better able to monitor the effects of the new rules and also guard against fraud.
The MOU was signed by SEC Acting Chairman Michael S. Piwowar and Mike Rothman, Minnesota Commissioner of Commerce and President of NASAA, which represents state securities administrators.
The agreement not only builds on an already productive relationship between the SEC and state regulators, it also offers additional insights and protections as we help companies grow and create jobs while providing new opportunities to investors.
“The agreement not only builds on an already productive relationship between the SEC and state regulators, it also offers additional insights and protections as we help companies grow and create jobs while providing new opportunities to investors,” said Acting Chairman Piwowar.
“This agreement will strengthen collaboration among state and federal securities regulators to help expand small-business investment opportunities while also protecting investors,” said Rothman. “Ongoing dialogue is essential to carry out our responsibilities going forward. With this MOU in place, we have an opportunity to share information that will bolster our efforts to support small business capital formation and prevent fraud.”
Under the new rules, companies will have more flexibility to engage in intrastate offers through websites and social media without having to register their offering with the federal government. Companies now can also raise up to $5 million per year through other amended rules, which could facilitate the development of regional offering exemptions at the state level to permit companies to raise from investors in a specific region. The previous limit was $1 million.
New JOBS Act rules went into effect in 2015 and 2016. New amendments to facilitate regional offerings went into effect in January and amendments to provide more flexibility for intrastate crowdfunding offerings will go into effect in April. These amendments are intended to facilitate greater access to capital for entrepreneurs that may not have been able to otherwise access capital using other alternatives. The MOU will increase the regulators’ ability to share data to better monitor implementation of the new rules and guard against fraud.
FINRA ORDERS PURSHE KAPLAN STERLING INVESTMENTS TO PAY $3.4 MILLION IN RESTITUTION TO NATIVE AMERICAN TRIBE
The Financial Industry Regulatory Authority (FINRA) announced today that Albany, Utah-based Purshe Kaplan Sterling Investments (PKS) will pay nearly $3.4 million in restitution to a Native American tribe, after the tribe paid excessive sales charges on purchases of non-traded Real Estate Investment Trusts (REITs) and Business Development Companies (BDCs). In addition to ordering restitution, FINRA fined PKS $750,000 for its failures to supervise the sales of these securities. This settlement resolves charges brought in a February 2016 FINRA complaint against PKS. The charges alleged in the same complaint against the tribe’s PKS registered representative, Gopi Vungarala, are ongoing.
FINRA found that from July 2011 through at least January 15, 2015, Vungarala was the tribe’s PKS registered representative and also the tribe’s Treasury Investment Manager responsible for managing the tribe’s investment portfolio. PKS failed to adequately review the risks inherent in that relationship or establish procedures designed to mitigate the risks. FINRA found that as a result of these supervisory failures, Vungarala was able to misrepresent to the tribe that neither PKS nor he would receive commissions on its purchases, and he was therefore able to induce the tribe to invest more than $190 million in non-traded REITs and BDCs. In fact, Vungarala personally received at least $9 million in commissions from the tribe’s investments.
FINRA also found that PKS failed to identify that more than 200 of the tribe’s purchases were eligible for discounts based on the volume of the purchases. FINRA found that Vungarala’s commissions would have been reduced to approximately $6 million if the tribe received the volume discounts for which it was eligible; however, Vungarala misrepresented to PKS that the tribe did not want to receive the volume discounts. PKS failed to take reasonable steps to verify this statement even after it received inquiries about the missed discounts from a REIT issuer and FINRA staff.
In addition, FINRA found that, between April 2009 and October 31, 2014, PKS failed to maintain and enforce an adequate supervisory system and written supervisory procedures to ensure compliance with the securities laws and FINRA rules when it sold non-traded REITs and BDCs. PKS did not have procedures that were reasonably designed to identify accounts that were eligible for volume discounts, and did not provide any guidance to its representatives or supervisors regarding how to ensure that the sales volume discounts were applied appropriately.
In concluding this settlement, PKS neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
FINRA PROMOTES MARCIA E. ASQUITH TO EVP, BOARD AND EXTERNAL RELATIONS; AND JENNIFER PIORKO MITCHELL TO VP, CORPORATE GOVERNANCE
The Financial Industry Regulatory Authority (FINRA) announced today that its Board of Governors has approved the promotion of Marcia E. Asquith to Executive Vice President, Board and External Relations. Jennifer Piorko Mitchell was promoted to Vice President, Corporate Governance.
In a newly created role, Ms. Asquith will continue to oversee the Office of the Corporate Secretary, as well as the offices of Investor Education, Member Relations and Education, Government Affairs and Corporate Communications.
Ms. Asquith joined FINRA in 2001 as Director of Government Relations and was promoted to Vice President in 2004. In 2007, she was named Corporate Secretary and subsequently promoted to Senior Vice President. Since November, she has also been serving as Interim Head of Corporate Communications and Government Affairs.
“Marcia’s deep experience with FINRA, combined with her extensive knowledge of the securities industry, make her the ideal choice for this new role as we work to strengthen our outreach to and engagement with FINRA’s key stakeholders,” said Robert W. Cook, FINRA President and CEO.
Ms. Piorko Mitchell has worked in the Corporate Secretary’s office since 2007, initially serving as Assistant Corporate Secretary. In 2014, she was promoted to Deputy Corporate Secretary and selected to serve as the Secretary of the FINRA Investor Education Foundation.
Prior to joining the Office of the Corporate Secretary, she served as the Legal Support Manager in the Office of General Counsel, where she began her career as a paralegal in 1997.
“Given her background and experience in managing our Board and Committee functions, as well as her expertise on corporate-governance matters, I am confident that Jen will excel in her new role,” Mr. Cook said.
FINRA regulates securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, and informing and educating the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers the largest dispute resolution forum for investors and firms.
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