The Financial Industry Regulatory Authority announced that it has fined National Securities Corporation (NSC) $9 million for alleged regulatory violations, according to Investment News.
Among other things, the firm was accused of attempting to artificially influence the market for 10 public offerings it underwrote. FINRA’s sanctions included disgorgement of $4.77 million in net profits NSC received for those offerings. The authority determined that between June 2016 and December 2018, NSC 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 before their completion.
NSC was also ordered to pay over $625,000 in restitution for not disclosing material information to customers who bought GPB Capitol Holdings, LLC private placements. The firm was fined $3.6 million for that misconduct and other supervisory and operational violations.
“Investors are entitled to rely on a market that is free from artificial price movement created by underwriters,” said Jessica Hopper, Executive Vice President and 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 said NSC’s misconduct involved artificially stimulating demand and supporting the price of securities being offered in the immediate aftermarket. Among the violations of Rule 101 that were cited were so-called ‘tie-in agreements’, 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.
According to the letter of Acceptance, Waiver and Consent, NSC consented to the entry of FINRA’s findings without admitting or denying the charges. A company spokesman said in a statement that National Securities has fully cooperated with FINRA and undertaken several measures to resolve the matters that were alleged.
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