Securities Lawyers Blog
This article continues the findings of The Financial Industry Regulatory Authority (FINRA) that led to sanctions against Royal Securities Company (Royal Securities) concerning allegations Royal lacked adequate supervision and controls in several areas. FINRA found that from 2009 through 2011, Royal Securities failed to establish adequate supervisory systems to ensure due diligence, training, and fair pricing of church bonds and funds sold by its representatives.
FINRA alleged that Royal Securities acted as the lead underwriter for three churches who were issuing church bonds. From May 2009, through October 2011, according to FINRA Royal Securities sold approximately $4.3 million in church bonds to customers. FINRA also found that Royal Securities was also involved in the sale of secured certificates of participation in a fund that raised capital for Christian churches. The church fund was sold primarily by another broker-dealer but FINRA found that Royal Securities had a secondary clearing arrangement with the broker-dealer where 151 church fund sales occurred in 65 accounts with a total of approximately $2,908,000 in sales.
FINRA found that Royal Securities failed to adopt reasonable written supervisory procedures and supervisory controls to govern church bonds and church funds lines of business. Specifically, FINRA found that Royal Securities procedures did not address specific suitability considerations, particularly supervision of issues, or any required due diligence of church bonds underwritten.