Addison, Texas based Grand Financial, Inc. submitted a Letter of Acceptance, Waiver and Consent in which the firm was fined $25,000 and consented to the entry of Financial Industry Regulatory Authority (FINRA) findings that it offered for sale oil and gas private placements (PPMs), which were unregistered pursuant to the exemption provided within Rule 506 of Regulation D within a few days of an initial telephone call to potential investors. FINRA stated that this conduct by Grand Financial constituted "general" solicitation in violation of Section 5 of the Securities Act of 1933. FINRA's findings also included that the firm sent advertising materials that omitted material facts to individuals rather than sending the individuals the PPM memorandum for an offering, which contained full disclosure of the risks involved in the offering. Grand Financial opted to send an executive summary that did not contain full disclosure of the risks associated with the offering.
Private placements are private investment offerings in public companies, which are sold to a small number of chosen investors. Private placements typically consist of offers of common stock, preferred stock, warrants, promissory notes, convertible promissory notes, or bonds. Purchasers are often institutional investors such as banks, insurance companies, or pension funds. An unlimited number of accredited investors can also purchase securities in an offering. Generally, accredited investors are those with a net worth in excess of $1 million or annual income exceeding $200,000 or $300,000 combined with a spouse. No more than 35 non-accredited investors may participate in a private placement.
The Securities Act of 1933 provides several exemptions to the securities registration requirements of Section 5 of the Act. For an issuer to be afforded the protection of the Regulation D, Rule 506 private offering registration exemption, it must not engage in any "general" solicitation. In order for a solicitation to not be general, the firm must have a substantive, pre-existing relationship with the potential investor. A substantive, pre-existing relationship may exist if the potential investor previously invested in public or private securities offered through the firm. A firm may also establish a substantive, pre-existing relationship by having interested persons fill out general questionnaires that do not relate to any offering. In addition, there must be sufficient time between establishment of the relationship and the solicitation for the sale of an unregistered security.
FINRA findings further stated that the firm failed to establish a supervisory system reasonably designed to achieve compliance with industry rules and regulations relating to general solicitation and telemarketing. Broker-dealers must establish and implement a reasonable supervisory system to protect their customers' interests. If broker-dealers do not establish and implement a reasonable supervisory system, they may be liable to investors for damages flowing from misconduct.
Therefore, investors who have suffered damages due to Grand Financial's failure to monitor its general solicitation and telemarketing activities can bring forth claims to recover losses against Grand Financial, which should have watched over the above described illegal activity. Have you suffered losses in a PPM or any other investment sold by Grand Financial, Inc.? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.
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