FINRA fined a large broker-dealer $5 Million for failing to adopt and implement adequate compliance procedures for IPO sales. FINRA alleges that the BD did not properly distinguish between pre-effectiveness indications of interest, which require final confirmation, and conditional offers, which allow investors to revoke. FINRA charged the firm with failure to supervise under Rule 3010 because the procedures were inadequate, the firm failed to train its sales staff, and the firm failed to monitor compliance.
OUR TAKE: A $5 Million fine appears somewhat punitive on its face given that FINRA does not allege that any clients were harmed. Whether an investor made an indication of interest or a conditional offer to purchase may be a distinction without a difference during the practical realities of an IPO. Once again, the regulators show the need for professional compliance staff that understand all the technical rules.