The Financial Industry Regulatory Authority (FINRA) published its 2016 Regulatory and Examination Priorities Letter which identifies new areas of focus as well as areas of recurring concern that can arise across the breadth of the securities industry.
One of FINRA’s priories in 2016 will be a focus on private placements and addressing concerns with respect to suitability, disclosure and due diligence. These concerns are relevant regardless of the underlying industry of the issuer or the type of investment (e.g., notes offerings, preinitial public offering investment funds, real estate programs, EB-5 investment funds or start-up companies).
In this regard the priorities letter states:
“FINRA’s focus will reflect recent regulatory developments, including the ability to conduct general solicitations under SEC Rule 506(c) of Regulation D and the crowdfunding rules which will become effective in 2016. FINRA notes that some communications used by firms concerning private placements have not reflected significant risks of loss of principal and lack of liquidity associated with these investments.
Where a communication addresses a specific investment benefit associated with a private placement offering, a firm must ensure that the key risks associated with such benefit are disclosed. FINRA will continue to evaluate firms’ compliance with respect to their communications, including general solicitation advertisements and materials posted on the Internet.”
