Corporate Financing Rule—Failure to Comply with Rule Requirements
Conduct Rules 2110 and 2710

Principal Considerations In Determining Sanctions

Monetary Sanction

Suspension, Bar, or Other Sanctions

See Principal Considerations In Introductory Section

Failure to Comply with Filing Requirements

Unfair or Unreasonable Underwriting Compensation

1. Percentage and dollar amount of unreasonable compensation as compared to maximum amount of underwriting compensation considered fair and reasonable (see Rule 2710(c)(2)(D)).

Failure to Comply with Filing Requirements

Fine of $2,500 to $25,000.

Unfair or Unreasonable Underwriting Compensation

Fine of $5,000 to $50,000.¹

Failure to Comply with Filing Requirements

In egregious cases, consider suspending the firm with respect to any or all activities or functions for five business days and/or suspending responsible individual in any or all capacities for a period of 30 business days to two years.

Unfair or Unreasonable Underwriting Compensation

Individual

Consider suspending the responsible individual in any or all capacities for a period of 30 business days to two years.

In egregious cases, consider barring the responsible individual.

Firm

Consider suspending the firm with respect to any or all activities or functions for five business days.

In egregious cases, consider suspending the firm for a longer period of time.

¹ As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.

Engaging In Prohibited Municipal Securities Business
MSRB Rule G-37¹

Principal Considerations In Determining Sanctions

Monetary Sanction

Suspension, Bar, or Other Sanctions

See Principal Considerations In Introductory Section

1. Position in firm of person making contribution.

2. Position of official to whom the contribution was made.

3. Nature of prohibited municipal securities business in which respondent engaged.

4. Whether respondent firm knew or should have known of contribution.

5. Relative size of the contribution.

Firm

Fine of $10,000 to $50,000.²

Responsible Individual

Fine of $10,000 to $50,000.³

In cases involving several prohibited municipal underwritings, or reckless conduct on the part of the firm, consider suspending the firm from engaging in municipal securities business with prohibited issuers for up to two years beyond the time proscribed by MSRB Rule G-37 and consider suspending the responsible individual(s) from acting as municipal principal(s) for a similar time period.

In egregious cases, consider prohibiting the firm from engaging in any future business with prohibited issuers or with the involved official and barring the responsible individual(s) in any or all principal capacities.

¹ MSRB Rule G-37 prohibits dealers from engaging in municipal securities business with an issuer within two years after any contribution to an official of such issuer made by the dealer, any municipal finance professional associated with the dealer, and any political action committee controlled by the dealer or any municipal finance professional.

² As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.

³ As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.

Escrow Violations—Prohibited Representations In Contingency Offerings; Transmission or Maintenance Of Customer Funds In Underwritings
NASD Conduct Rule 2110; SEC Rule 15c2-4 And SEC Rule 10b-9

Principal Considerations In Determining Sanctions

Monetary Sanction

Suspension, Bar, or Other Sanctions

See Principal Considerations In Introductory Section

1. Amount of commissions and/or other underwriting compensation retained by respondent.

2. Whether respondent was affiliated with the issuer or other entity to which customer funds were released.

3. Whether subscription funds were released from escrow before the contingency occurred.

SEC Rule 15c2-4

4. Extent to which customer funds were exposed to risk or loss.

 
SEC Rule 10b-9

5. Extent of failure to satisfy the contingency described in the prospectus or offering circular.

6. Whether respondent used non-bona fide sales to give the false appearance that the contingency was satisfied.

SEC Rule 15c2-4

Fine of $1,000 to $10,000.  

SEC Rule 10b-9

Fine of $5,000 to $50,000.

SEC Rule 15c2-4

In egregious cases, consider suspending firm with respect to any or all activities or functions and/or responsible individual in any or all capacities for up to 30 business days.

SEC Rule 10b-9

In egregious cases, consider suspending firm with respect to any or all activities or functions and/or responsible individual in any or all capacities for up to two years. In appropriate cases, consider requiring a rescission offer.

Free-Riding And Withholding Violations
NASD Conduct Rule 2110 And IM-2110-1

Principal Considerations In Determining Sanctions

Monetary Sanction

Suspension, Bar, or Other Sanctions

See Principal Considerations In Introductory Section

1. Nature of restricted account(s) involved. Consider whether the account is absolutely or conditionally restricted.

2. Whether respondent has any interest in the restricted account(s).

3. Whether case involves bona fide dispute regarding normal investment practice, proportion of allocation, or substantiality of allocation.

4. Whether respondent engaged in misconduct for purpose of improperly conferring financial benefit on another person or entity.

If the respondent is the restricted buyer, a fine of $1,000 to $15,000.¹

If the respondent is the selling member firm and/or an associated person of the firm, a fine of $1,000 to $15,000. ²

If the restricted buyer is not subject to FINRA jurisdiction, "transaction profit" may be added to the fine for the selling member and/or associated person. In egregious cases or those with evidence of willful misconduct, consider a higher fine of up to three times the "transaction profit."

Individual

Consider suspending respondent representative (buyer or seller) in any or all capacities for up to 30 business days.

In egregious cases, consider a longer suspension (of up to two years) or a bar.

Firm

Consider suspending respondent firm with respect to any or all activities or functions for five to 10 business days.

In egregious cases, consider a longer suspension (of up to two years) or an expulsion.

¹ The transaction profit received by respondent should be added to the fine amount. "Transaction profit" means the greater of the immediate after market unrealized profit (the price determined to be the immediate after market price times the number of shares minus the public offering price) or the actual profit realized.

² As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit.

Unregistered Securities-—Sales of
NASD Conduct Rule 2110 And Section 5 Of The Securities Act Of 1933

Principal Considerations In Determining Sanctions

Monetary Sanction

Suspension, Bar, or Other Sanctions

See Principal Considerations In Introductory Section

1. Whether respondent attempted to comply with an exemption from registration.

2. Whether respondent sold before effective date of registration statement.

3. Share volume and dollar amount of transactions involved.

Fine of $2,500 to $50,000.¹

In egregious cases, consider suspending respondent in any or all capacities for up to two years or barring respondent.

¹ As set forth in General Principle No. 6, Adjudicators may increase the recommended fine amount by adding the amount of a respondent's financial benefit. Where respondent is the beneficial owner or an affiliate of the owner of the unregistered securities, also consider including all sales proceeds or other benefits received by the respondent directly or indirectly (possibly by requiring a rescission offer to the investors).