(Reuters) - The Financial Industry Regulatory Authority on Tuesday fined eight brokerages and 10 individuals, and ordered $3.2 million in restitution for selling private placements that ultimately failed.
The Wall Street self-regulatory watchdog found that the brokerages did not have “adequate supervisory systems in place to identify and understand” the risks of the private placement offerings, according to a statement.
Brokerages named include NEXT Financial Group Inc in Houston, Texas; Investors Capital Corp of Lynnfield, Massachusetts; and Securities America in La Vista, Nevada.
A Securities America spokeswoman said in a statement that the firm is “pleased to put the matter behind us”.
Representatives from NEXT Financial Group and Investors Capital Corp did not immediately return calls for comment.
FINRA sanctioned the firms and numerous officers they employed for sales of the securities offered by Provident Royalties LLC, Medical Capital Holdings and DBSI Inc. The securities ultimately failed, causing significant investor losses. None of the companies or individuals involved admitted or denied the charges.
Private placements, often called “Reg D offerings”, are usually exempt from Securities and Exchange Commission registration because they are not intended for sale to the general public. Investors must typically meet certain net-worth and income requirements to be eligible to purchase private placements.
Hundreds of customers lost money on private placements issued by Medical Capital Holdings Inc and Provident Royalties LLC, companies accused by the Securities and Exchange Commission in July 2009 of defrauding investors.
In April, Ameriprise Financial Inc and its former brokerage unit, Securities America Inc, agreed to pay about $150 million to clients who lost about $400 million on the securities that turned out to be frauds.
Securities America was acquired by Ladenburg Thalmann Financial Services Inc. on November 7.
DBSI Inc, the failed U.S. real estate investor that issued the other private placements FINRA cited in the cased filed for bankruptcy in 2008.
Reporting by Suzanne Barlyn in New York, editing by Chelsea Emery
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