Securities Lawyers Blog
Brokerage firm Rives, Leavell & Co. (Rives) was recently sanctioned by the the Financial Industry Regulatory Authority (FINRA) over allegations that the firm disseminated to the investing public 29 advertisements including newspapers, brochures, offering documents, and pastor letters related to church bond investments that failed to comply with FINRA’s advertising rules. FINRA determined that these communications generally failed to adequately explain or highlight the risks associated with the investments, contained misleading language, or failed to explain investment terms sufficiently.
Rives is a broker-dealer based in Jackson. Mississippi, employs twelve registered brokers and has no branch office locations. NASD Conduct Rule 2210(d)(1) establishes content standards for public communications. All member communications with the public are to be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular security or service. Further, FINRA prohibits members from omitting any material fact. In addition, NASD Rule 2210(d)(1)(B) prohibits claims that are false, exaggerated, unwarranted or misleading. FINRA has reminded firms that members must consider the nature of the audience to which the communications will be directed and that different levels of explanation or detail may be necessary depending on the audience to which a communication is directed.
During the first review period FINRA examined, the agency found that Rives disseminated two newspaper advertisements, five brochures, one pastor letter, one mailed advertisement, and two offering documents that contained improper content. For example, FINRA found that a number of the communications promoted the bonds’ high interest rates but failed to disclose various risks associated with the investment including that the bonds were unrated by a rating agency, were potentially illiquid and might result in a loss of principal. The communications also failed to explain and contrast the difference between different interest options on the bonds.
FINRA also found that the communications were promoted to an audience whose investment sophistication varied widely and failed to provide the necessary level of clarity. For instance, FINRA found that many of the advertisements promoted high interest rates but only disclosed corresponding risk information in small print as a legend, footnote, or separate disclosure page.
FINRA also alleged that the offering documents contained key terms which were not defined thereby failing to provide readers with a sound basis for evaluating the investment discussed. FINRA stated that its investigation revealed that the offering documents also included only boilerplate definition of terms that created a lack of clarity. One set of offering documents claimed that the unaudited financial statements were compiled by an independent auditor when in fact the report was not independent. Additionally, FINRA found that the firm claimed that the financial statements were prepared m accordance with generally accepted accounting principles (GAAP) when, in fact, the auditor’s report departed from GAAP standards.
The attorneys at Gana Weinstein LLP are experienced in handling claims involving brokerage firm’s false and misleading statements. Our consultations are free and we welcome any inquiries concerning securities matters.