Merriman Capital, Inc. (CRD #18296, San Francisco, California) recently submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured, fined $120,000 and required to retain an independent consultant to conduct a comprehensive review of the adequacy of the firm’s WSPs. The firm shall adopt and implement the independent consultant’s recommendations and shall provide FINRA with a written implementation report, certified by a firm officer, setting forth the details of the implementation.
Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it failed to maintain WSPs reasonably designed to achieve compliance with applicable securities laws and regulations. The findings stated that the firm’s WSPs listed specific legal rules and regulations to be complied with, but failed to describe the specific procedures to be followed by the firm, or the person responsible for carrying out many of its procedures to be followed by the firm.
The findings also stated that the firm’s supervisory procedures failed to address several lines of its business. Among other deficiencies, the firm’s WSPs failed to address private placements even though selling such securities was a substantial portion of the firm’s business and it raised more than $16 million for its parent company through several private offerings. The firm’s procedures also failed to designate an appropriate principal to supervise private placements of its own securities.
The findings also included that the firm revised its WSPs to address private placements but the revised procedures were still insufficient. In spite of FINRA notification that the new procedures appeared to be deficient, the firm continued to engage in private placements of its parent company’s securities while maintaining the inadequate supervisory procedures. FINRA found that the firm raised approximately $10 million by selling shares of unrated preferred stock issued by its parent company but did not file the offering materials with FINRA. Prior to the effective date of FINRA Rule 5122, the firm had discussed potential terms with an investment adviser representative, but had not commenced its selling efforts. FINRA also found that the firm raised $3.1 million by selling shares of three-year promissory notes issued by its parent company that paid 10 percent interest. The term sheet disclosed to investors that intended uses of the proceeds from the placement included between $750,000 and $1,000,000 to be paid to settle litigation. The firm and its parent company did not make any other disclosures about the intended use of the proceeds. In addition, FINRA determined that the majority of the proceeds were intended for ordinary operating expenses, not to resolve litigation. The firm used a written investor presentation to solicit investors for the placement that failed to disclose information and contained false statements. Even though an earlier version of the presentation was reviewed and signed off of by a firm principal, a firm principal did not approve the final version prior to use and the firm did not maintain a separate file for the communication evidencing its approval.
This information which is publicly available on FINRA’s website has been provided by The White Law Group, LLC.
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