FINRA 5110 Enforcement Action. . . A Harbinger of Things to Come?

On November 3, 2016, FINRA issued an enforcement action against a registered broker-dealer for violations related to FINRA Rule 5110, which requires firms to make certain regulatory filings in connection with the public offering of securities.  More specifically, the firm replaced the dealer manager of a real estate investment trust offering, and failed to seek or obtain FINRA approval, instead incorrectly believing that they could rely on the prior dealer manager’s FINRA approval.  In addition, the firm failed to have adequate supervisory procedures to monitor the limits on underwriting compensation as required by FINRA Rule 5110.  FINRA rarely issues enforcement actions for violations of FINRA Rule 5110, so this action may represent an increased regulatory focus on how firms handle and manage the offering of securities.

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