On November 29, 2011, FINRA announced that it had fined eight of its member firms and ten individuals for selling inappropriate private placement securities. According to the Notice, the firms and individuals involved sold interests in private placement offerings without having a reasonable basis for recommending the securities.

When dealing with private placements, the federal securities laws and FINRA rules impose a duty on broker-dealers to conduct a reasonable investigation of the security and the issuer's representations about it. Failure to undertake such an investigation may violate:

• Section 17(a) of the Securities Act,
• Section 10(b) of the Securities and Exchange Act, and Rule 10b-5 promulgated thereunder,
• FINRA Rule 2010 ("A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade.")
• FINRA Rule 2020 ( "No member shall effect any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance.")
• NASD Rule 2310 (Recommendations to Customers: Suitability).
• Other rules and duties.

As the Notice explains, FINRA imposed sanctions against eight firms and ten individuals for either failing to conduct a reasonable investigation or failing to enforce procedures with respect to the sale of certain private placements. FINRA provided the following list of violators and fines:

• NEXT Financial Group, Inc. of Houston, TX, was ordered to pay $2 million in restitution to affected customers and fined $50,000; Steven Lynn Nelson, the firm's Vice President for Investment Products and Services, was suspended in any principal capacity for six months and fined $10,000 in connection with the sale of three Provident Royalties private placements.
• Investors Capital Corporation of Lynnfield, MA, was ordered to pay roughly $400,000 in restitution to affected customers in connection with the sale of two Provident Royalties private placements and was also sanctioned in connection with an additional offering issued by CIP Leveraged Fund Advisors.
• Garden State Securities, Inc. of Red Bank, NJ, and Kevin John DeRosa, a co-owner of the firm, were ordered to pay $300,000 in restitution on a joint-and-several basis to affected customers in connection with the sale of a Medical Capital private placement. DeRosa was also suspended for 20 business days in any capacity and for an additional two months in any principal capacity, and fined $25,000. Vincent Michael Bruno, the firm's Chief Compliance Officer at the time, was suspended for one month in a principal capacity and fined $10,000.
• Capital Financial Services of Minot, ND, was ordered to pay $200,000 in restitution to affected customers, and Brian W. Boppre, a former principal, was suspended in any principal capacity for six months and fined $10,000 in connection with the sale of three Provident Royalties private placements and a Medical Capital private placement.
• National Securities Corporation of Seattle, WA, was ordered to pay $175,000 in restitution to affected customers, and Matthew G. Portes, Director of Alternative Investments/Director of Syndications, was suspended in any principal capacity for six months and fined $10,000 in connection with the sale of three Provident Royalties private placements and a Medical Capital private placement.
• Equity Services, Inc. of Montpelier, VT, was censured, fined $50,000 and ordered to pay nearly $164,000 in restitution in connection with the sale of a private placement DBSI, Inc. issued; Stephen Anthony Englese, Senior Vice President for Securities Operations, was suspended from association with any FINRA-regulated firm in any capacity for 30 business days and fined $10,000; and Anthony Paul Campagna, a registered representative, was suspended from association with any FINRA-regulated firm in any capacity for 30 business days and fined $25,000.
• Securities America, Inc. of La Vista, NE, was censured and fined $250,000 in connection with the sale of two Provident Royalties private placements.
• Newbridge Securities Corporation of Fort Lauderdale, FL, was fined $25,000; Robin Fran Bush, the former Chief Compliance Officer of Newbridge, was suspended in any principal capacity for six months and fined $15,000 in connection with the sale of four DBSI private placements and a Medical Capital private placement.
• Leroy H. Paris II, former President and Chief Executive Officer for the now-defunct Meadowbrook Securities, LLC (fka Investlinc Securities, LLC), of Jackson, MS, was suspended for six months in any principal capacity and fined $10,000 in connection with the sale of two Provident Royalties private placements and a Medical Capital private placement.
• Michael D. Shaw, formerly associated with VSR Financial Services, Inc. of Baton Rouge, LA, was barred from the industry in connection with the sale of a private placement offered by DBSI, Inc. and several additional private placements offered by other issuers. In addition, Shaw falsified customer account documents.

This is the second round of sanctions imposed this year. Back in April, FINRA fined two Member Firms and seven individuals for similar conduct.

For more information on this issue, investors can obtain FINRA's Notice here or visit FINRA's website at FINRA.org. For more information on the disciplinary history of FINRA's Member Firms and individuals involved, visit FINRA's Broker Check system.