The Financial Industry Regulatory Authority (FINRA) announced on Thursday that it had sanctioned National Securities Corporation (NSC) for approximately $9 million, including disgorgement of $4.77 million in net profits from underwriting 10 public offerings in which NSC sought to influence the market artificially allegedly.
In addition, FINRA ordered NSC to pay more than $625,000 in restitution for failing to disclose material information to customers who purchased private placements from GPB Capital Holdings, LLC. As a result of this misconduct and various other violations, FINRA imposed a $3.6 million fine.
According to FINRA, 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 offerings before they closed between June 2016 and December 2018. The Rule 101 prohibits underwriters from soliciting aftermarket bids or purchases during a restricted period.
“Investors are entitled to rely on a market that is free from artificial price movement created by underwriters. 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,” Jessica Hopper, the Executive Vice President and Head of FINRA’s Department of Enforcement, commented.
In the immediate aftermarket, NSC’s actions were aimed at artificially stimulating demand and supporting the price of thinly traded securities. However, in order for NSC to generate future investment banking revenue, its underwritten offerings had to perform well aftermarket. A settlement was reached between NSC and FINRA in which FINRA’s findings were accepted without being admitted or denied.
Crown Capital's Penalty
FINRA penalized Crown Capital Securities for paying nearly $19.3 million in transaction-based compensation to unregistered entities in March.
Crown Capital has been a member of FINRA since 1972, providing clients with a wide range of financial services. With approximately 300 registered representatives, the company is headquartered in California.
According to FINRA, Crown Capital violated Rules 2040 and 2010 and was fined. The money was paid to unregistered entities between January 2017 and January 2021. FINRA fined the financial services provider $75,000 for this violation.
