FINRA Levies $770K Fine-Failure to Deliver Prospectus

The Financial Industry Regulatory Authority (FINRA) recently assessed fines of $770,000 to the following five firms for failing to deliver prospectuses to purchasers of securities:

  • LPL Financial LLC - $400,000
  • State Farm VP Management Corp. -$155,000
  • Deutsche Bank Securities Inc. - $125,000
  • Scottrade Inc. - $50,000
  • T. Rowe Price Services, Inc. -$40,000

FINRA's review covered from January 2009 through June 2011. In the settlement agreements, FINRA made the following observations:

LPL Financial relied on brokers to deliver the prospectuses but had no procedure in place to determine if they were delivered in a timely manner. LPL was required to deliver over 3 million of these disclosure documents during the review period.

State Farm, who should have delivered over 150,000 during the review period was found to have inadequate supervisory procedures in place.

Scottrade, Deutsche Bank Securities and T. Rowe Price were found to have failed to make delivery of the documents in fewer instances, with inadequate procedures in place.

A prospectus is a disclosure document that describes a security to potential buyers. Sometimes referred to as containing "the hundred and one reasons not to invest" in the particular security, it contains detailed information about the the company's business and competition and more importantly contains downside risks generally not mentioned by the selling broker.

For the obvious reason, the law generally requires that the document be made available to the purchaser prior to making the purchase.

If you have questions about losses in your brokerage account, please contact us for a no charge consultation. We have been helping investors recover stock market losses due to fraud and negligence for 25 years.

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