Regulatory Notice 10-22

Obligation of Broker-Dealers to Conduct Reasonable Investigations in Regulation D Offerings

Executive Summary

FINRA reminds broker-dealers of their obligation to conduct a reasonable investigation of the issuer and the securities they recommend in offerings made under the Securities and Exchange Commission's Regulation D under the Securities Act of 1933—also known as private placements.

 

Regulation D provides exemptions from the registration requirements of Section 5 under the Act. Regulation D transactions, however, are not exempt from the antifraud provisions of the federal securities laws. A broker-dealer has a duty—enforceable under federal securities laws and FINRA rules—to conduct a reasonable investigation of securities that it recommends, including those sold in a Regulation D offering.

 

Moreover, any broker-dealer that recommends securities offered under Regulation D must meet its suitability requirements under NASD Rule 2310 (Suitability), and must comply with the advertising, supervisory and record-keeping rules of FINRA and the SEC.

 

Questions regarding this Notice should be directed to:

  • Joseph E. Price, Senior Vice President Corporate Financing/Advertising, at (240) 386-4623;
  • Paul Mathews, Director, Corporate Financing Department, at (240) 386-4639; or
  • Gary Goldsholle, Vice President and Associate General Counsel, Office of General Counsel, at (202) 728-8056.