The guidance highlights certain issues identified by FINRA regarding member firm communications to retail investors in private placement offerings.
On July 1, 2020, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 20-21 (RN 20-21) to assist member firms in their creation, review, approval, distribution, and use of retail communications regarding privately placed securities.
FINRA prefaced RN 20-21 by stating that its recent review of retail communications by member firms in connection with private placement offerings has revealed deficiencies under FINRA Rule 2210, which addresses member communications with the public. FINRA noted that while private placement investments are generally speculative, illiquid, and attended by higher risk than publicly available investments, many of the private placement-related communications it reviewed did not balance claims regarding the investment’s benefits by disclosing these risks. FINRA further noted that certain communications also contained false, misleading promissory statements or claims such as assertions about the likelihood of a future public offering; claims about the issuer’s new or untried business model; inaccurate assertions regarding regulation or the risks of the offering; or predictions of investment performance prohibited by FINRA rules.
FINRA proceeded to set forth certain concrete guidelines specific to retail communications for private placements. This Client Alert summarizes these guidelines and their import for broker-dealers effecting private placement transactions.