FINRA’s Department of Enforcement investigated EDI Financial’s business activities between January 2008 and November 2014, and alleged it failed to establish and maintain an adequate system to monitor, supervise, and control its registered representatives’ solicitation and sale of unregistered private placements. FINRA also alleged EDI Financial failed to supervise adequately mutual fund switches and maintained inaccurate records concerning mutual fund switches by certain customers.
EDI Financial’s supervisory systems were particularly deficient with respect to its reasonable basis and customer-specific suitability obligations, according to FINRA. For example, FINRA alleged EDI Financial lacked adequate written procedures concerning the proportion of a customers’ assets that could be allocated to private placements. Moreover, EDI Financial did not effectively monitor customers’ exposure to private placements, and thus, could not reasonably determine whether customers were overconcentratred in private placements.
Finally, FINRA alleged EDI Financial lacked adequate supervisory systems and procedures for conducting due diligence on private placements. In particular, FINRA noted EDI Financial’s written supervisory procedures did not provide adequate guidance concerning how due diligence was to be documented, and the firm failed to sufficiently document due diligence conducted on private placements. As a result, FINRA contended EDI Financial could not effectively supervise whether adequate due diligence was performed on private placements.
Based upon the foregoing conduct, FINRA alleged EDI Financial violated several financial industry rules and regulations, including but not limited to, NASD Conduct Rules 2110, 2310, 3010(a) and (b), as well as FINRA Rules 2010. Specifically, NASD Rule 3010(a) requires each member to establish and maintain a system of supervision that is reasonably designed to achieve compliance with applicable securities laws and regulations and with applicable NASD and FINRA Rules. Whereas, NASD Rule 3010(b), requires each member firm to “establish, maintain and enforce written procedures to supervise the types of business in which it engages and to supervise the activities of registered representatives, registered principles, and other associated persons that are reasonably designed to achieve compliance” with FINRA Rules.
Lufrano Law, LLC is a national securities litigation firm and has experience representing investors who have investment disputes with brokers and broker-dealers. If you lost money investing in unregistered private placements through EDI Financial, you may be able to recover your losses through FINRA arbitration. Our firm only receives a fee if you recover money. Please contact one of our attorneys at (800) 627-2179 to schedule a free consultation.