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Federal Register / Vol. 86, No. 25 / Tuesday, February 9, 2021 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES

became effective on December 3, 2012,5
FINRA required members to use the Filer Form for filings under both rules.6
Members submit the Filer Form and relevant offering documents to FINRA
through the FINRA Gateway.7 On July 1, 2013, FINRA amended Rule 5123 to require members to file the requisite information in a manner prescribed by FINRA and also began using an updated version of the Filer Form.8 On May 22, 2017, FINRA began using a further updated Filer Form.9 The changes proposed herein would update the version of the Filer Form that has been in use since May 2017 for filings made pursuant to Rule 5122 and Rule 5123.
The proposed changes would represent the fourth version of the Filer Form since Rule 5123 became effective in 2012. Updates to the Filer Form would assist FINRA in fulfilling its regulatory responsibilities by improving the quality of information that is filed with it about the private placement and the members role in offering the securities. Specifically, FINRA proposes to clarify questions that may have been unclear to members, and add other questions that, with the benefit of experience, FINRA believes would help it better understand the issues and potential risks associated with a private placement.
The Filer Form has three main components: 1 The Participating Member Information section, which seeks information about the members 5 See Securities Exchange Act Release No. 67157
June 7, 2012, 77 FR 35457 June 13, 2012 Notice of Filing of Amendments No. 2 and No. 3 and Order Granting Accelerated Approval of File No. SR
FINRA2011057; Regulatory Notice 1240
September 2012.
6 See Regulatory Notice 1240 September 2012.
See also Regulatory Notice 1326 August 2013;
Securities Exchange Act Release No. 69843 June 25, 2013, 78 FR 39367 July 1, 2013 Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Members Filing Obligations Under FINRA Rule 5123 Private Placements of Securities File No. SRFINRA
2013026.
7 FINRA Gateway is an online compliance tool that provides consolidated access to FINRA
applications and allows members to submit required filings electronically to meet their compliance and regulatory obligations.
8 See Regulatory Notice 1326 August 2013 and Securities Exchange Act Release No. 69843 June 25, 2013, 78 FR 39367 July 1, 2013 Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Members Filing Obligations Under FINRA Rule 5123 Private Placements of Securities File No. SRFINRA
2013026.
9 See Regulatory Notice 1717 April 2017 and Securities Exchange Act Release No. 80321 March 28, 2017, 82 FR 16245 April 3, 2017 Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Private Placement Filer Form Under FINRA Rules 5122 and 5123 File No.
SRFINRA2017008.

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that are selling the private placement;
2 the Issuer Information section, which captures basic information about the issuer; and 3 the Offering Information section, which seeks information about the offering.10
FINRA proposes changes to the Filer Form that would add or clarify questions or other information requested in the Offering Information section. The benefit to members and FINRA would be twofold. When a FINRA review of the submitted Filer Form identifies a potential concern or a need for additional information, it typically leads to follow-up questions by FINRA staff. These inquiries absorb members and FINRAs resources. The proposed changes to the Filer Form would provide more focused and complete information that, in many cases, would obviate the need for these follow-up inquiries. In addition, the proposed changes would enable FINRA
to get better information about those issues in private placement transactions that have presented the most risk in disciplinary cases.
The proposed changes address three key categories of offering information that can benefit from more focused or complete information in the Offering Information section of the Filer Form: i Contingency offerings; ii the disciplinary history of the issuer, its principals and related parties; and iii the use of proceeds.
FINRA also proposes to add a new question regarding FINRA Rule 3280
Private Securities Transactions of an Associated Person. In addition, FINRA
proposes updates to existing questions regarding the members date of first sale or offer, the Securities Act registration exemptions that apply and what type of documents are being filed with FINRA.
The Filer Form does not set standards of disclosure or information gathering requirements for members that participate in private placements.11
Rather, the information provided by members on the Filer Form assists FINRA in focusing its review on the areas of heightened concern in the private placement market. Based on a review of private placement enforcement actions from 2016 to 2018, FINRA found frequent violations resulting from improper contingency 10 FINRA staff also monitor SEC and FINRA
disciplinary actions involving private placements.
This monitoring enables FINRA to identify issues that frequently occur in private placements.
11 The scope of a members obligations to conduct a reasonable investigation of a private placement is addressed in Regulatory Notice 1022 April 2010.
FINRA Rules 5122 and 5123 and the Filer Form do not impose any additional requirement of reasonable investigation beyond what is discussed in that Notice.

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arrangements,12 inadequate investigations concerning disciplinary history 13 and the issuers intended use of proceeds,14 and private offerings sold by associated persons away from their firm without proper authorization and oversight.15
The proposed Filer Form changes would help address these concerns and streamline the existing information collection procedure that FINRA relies on to fulfill its regulatory responsibility related to private placements.
The questions in the Offering Information section of the Filer Form can generally be answered either by: i Inputting requested information or responding unknown; or ii checking one of three radio buttons for yes, no, or unknown. The proposed changes to the Filer Form would not alter this general approach. Members would continue to have the option to respond unknown to each proposed new or revised question or request for information. Therefore, the Filer Form, as proposed to be modified, would not impose any new obligation on members to seek out information that they do not 12 FINRA has found that members failed to safeguard investor funds in offerings that were subject to certain conditions to close or failed to return funds to investors as required when the issuer made material changes to the terms of the contingency or offering. See, e.g., McDonald Partners LLC, FINRA AWC No. 2015043649601
February 21, 2018; Financial America Securities, Inc., FINRA AWC No. 2014042711601 May 26, 2016; Dawson James Securities, Inc., FINRA AWC
No. 2015044393901 February 07, 2017; TerraNova Capital Equities, Inc., FINRA AWC No.
2015047958301 December 21, 2017.
13 In recent cases, including those involving fraud, FINRA has found that members did not meet their obligation to conduct a reasonable investigation of the offering when they failed to identify or follow up on areas of heightened concern regarding the background of the issuer, its principals, or related parties. See, e.g., First American Securities, Inc., FINRA AWC No.
2015046056405 November 7, 2016; Richard Gomez, FINRA NAC Decision No. 2011030293503
March 28, 2018; Carolina Financial Securities, LLC and Bruce V. Roberts, FINRA OHO Decision No. 2014040295201 May 26, 2017.
14 In recent cases, including those involving fraud, FINRA has found that members did not meet their obligation to conduct a reasonable investigation of the offering when they failed to review or follow up on areas of heightened concern regarding related party transactions or the issuers intended use of proceeds. See, e.g., Harold Lee Connell, FINRA AWC No. 2016051493702 June 12, 2018; Carolina Financial Securities, LLC and Bruce V. Roberts, FINRA OHO Decision No.
2014040295201 May 26, 2017; Bridge Capital Associates, Inc., FINRA AWC No. 2014039283801
December 12, 2016.
15 See, e.g., First American Securities, Inc., FINRA
AWC No. 2015046056405 November 7, 2016;
Richard Gomez, FINRA NAC Decision No.
2011030293503 March 28, 2018; Ahmed Ghassan Gheith, FINRA AWC No. 2016052540603 April 24, 2018; Brandon D. Gioffre, FINRA AWC No.
2015046448701 June 23, 2016.

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