Commentary June 23, 2022 at 07:44 AM Share & Print
The Financial Industry Regulatory Authority has ordered the National Securities Corp. of New York, a brokerage firm, to pay a total of $9 million in fines, disgorgement of profits, and restitution to investors tied to 10 public offerings in which “NSC attempted to artificially influence the market for the offered securities,” as well as to other misconduct and violations.
“Investors are entitled to rely on a market that is free from artificial price movement created by underwriters,” according to Jessica Hopper, head of FINRA’s Department of Enforcement. “We will continue to vigilantly enforce rules designed to prevent underwriters from influencing the market for an offered security, including supporting the offering price by creating a perception of aftermarket demand.”
FINRA found that between June 2016 and December 2018, NSC — while acting as an underwriter for three initial public offerings and seven follow-on offerings — “violated Rule 101 of Regulation M under the Securities Exchange Act of 1934 by unlawfully inducing or attempting to induce certain customers to purchase stock in the aftermarket of the offerings prior to their completion.”
The regulator also found that NSC violated Regulation M in connection with 10 offerings “by engaging in … misconduct during each offering’s restricted period.”
The misconduct included, for instance, “expressly conditioning allocations on a branch manager’s or representative’s agreement to buy a specific number of shares in the aftermarket for the branch’s or representative’s customers (known as ‘tie-in agreements’), and “threatening to reduce allocations to representatives who would not agree to solicit their customers to participate in the aftermarket.”
The settlement reached with NSC resolves other charges, such as that from April 2018 and July 2018, the firm “negligently omitted to tell investors in two offerings related to GPB Capital about delays in the issuer’s required public filings, including audited financial statements,” according to FINRA.
For its part, NSC said in a statement Thursday that “it is pleased to have resolved this legacy matter and remains fully committed to complying with its regulatory requirements as it focuses on supporting its clients.”
The firm added that it “has worked in full cooperation with FINRA and has undertaken several measures to resolve the matters referenced while continuing to enhance its regulatory compliance posture.”
Also, NSC noted that it has left the investment banking business and “has taken active steps to der-isk the firm, including eliminating high-risk business lines and registered representatives.”