Effective December 3, 2012, FINRA Rule 5123 requires broker-dealers to file certain documents related to the sale of private placements with FINRA.

According to the rule, documents that must be filed include a copy of any private placement memorandum, term sheet or other offering document, including any materially amended versions thereof, used in connection with such sale.  The documents must be filed within 15 calendar days of the date of first sale.

A number of private placements are exempt from the requirements of the Rule.  Exemptions include, but are not limited to sales to certain:

• institutional accounts
• qualified purchasers
• qualified institutional buyers
• investment companies
• an entity composed exclusively of qualified institutional buyers
• banks
• employees and affiliates
• knowledgeable employees
• eligible contract participants
• accredited investors

View the full list of exemptions here.

In addition to the list of exemptions, FINRA may exercise its power to exempt a member or association person from the provisions of the Rule for good cause shown, according to the Rule 9600 Series.

FINRA is required to maintain confidential treatment to all documents and information filed in to the Rule.

View the full FINRA Rule 5123 here.

FINRA has also published Frequently Asked Questions (“FAQ”) to provide guidance to broker-dealers and registered representatives regarding Rule 5123.

About Moulton & Arney, LLP

Moulton & Arney is a boutique litigation and arbitration firm founded on a genuine commitment to providing superior, personalized representation. We are at our best handling complex cases that require ingenuity and experience. Our focus is on understanding each client’s needs, providing clear direction and achieving RESULTS efficiently and effectively.

Attorney Cynthia R. Levin Moulton, the firm’s founder, has a proven track record in investment fraud claims involving an array of complex investment products. She has been named a Texas Super Lawyer in 2004, 2005, 2007, 2009, 2010, and 2011 a Thomson Reuters Service, is rated 5 out of 5 by Martindale.com, and is rated a 10.0 by AVVO.com.

To contact Moulton & Arney, LLP, visit http://www.moultonarney.com or, call (866) 378-4465, or (713) 353-6699.

The Financial Industry Regulatory Authority (“FINRA “) has released its annual report highlighting points of emphasis in its regulatory programs.   FINRA continues to place emphasis on investor protection and market integrity.  Record-low interest rates and slow growth have drawn retail investors to unconventional investment products and strategies that are potentially outside of their risk tolerance.

FINRA is concerned that sales practice abuses combined with investors’ hunger for higher yield investments may lead to significant harm to investors in the event of a market correction in these investments.  Below is an overview of a few of FINRA’s focus areas.  For a full copy of the FINRA report, please click here.

In a response to requests from attorneys, the Financial Industry Regulatory Authority (FINRA) will now allow registered investment advisors (RIAs) to use its arbitration system.

Before opening the system to RIAs, FINRA arbitration was used exclusively for investor or industry complaints regarding securities firms and broker-dealers.

While FINRA has not yet made a formal announcement about the program, President of FINRA’s office of dispute resolution, Linda Fienberg, said a few arbitration cases involving investment advisors are already in the system. According to Fienberg, the addition of RIAs is unrelated to FINRA’s effort to become the self-regulatory organization overseeing investment advisors.  “We’re doing it because we had a lot of requests from attorneys,” she said.

Last month, the Securities and Exchange Commission (“SEC”) froze the assets of Rex Venture Group, alleging the operation of a Ponzi scheme.  According to the SEC, Rex Venture Group (“Rex Group”) and its principal, Paul Burks, raised millions of dollars through the website ZeekRewards.com.

ZeekRewards.com offered several programs for investors to earn money, some of which included the purchasing of investment contracts.  ZeekRewards.com and its organizers failed to register these securities with the SEC in violation of federal securities law.

According to the SEC’s complaint, in typical Ponzi style, the customers were promised approximately 50% return on their investments through a profit sharing plan.  Customers were allegedly misled as to the profitability of the company and funds received by investors were not profits, but merely new investor money.