The Financial Industry Regulatory Authority Inc. is actively investigating broker-dealer underwriters of subprime securities, a Finra official said this morning at the regulator's national conference in Baltimore.
The Financial Industry Regulatory Authority Inc. is actively investigating broker-dealer underwriters of subprime securities, a Finra official said this morning at the regulator's national conference in Baltimore.
Meanwhile Finra is also preparing to bring more enforcement actions for selling Regulation D deals, commonly known as private placements.
As for subprime securities: Finra is looking at whether broker-dealers reported incorrect data when creating the securities, said the official, who asked not to be identified.
Such incorrect data could include possible misstatements by firms about the default rates for the underlying mortgages used to create the mortgage-backed securities.
The Securities and Exchange Commission in April charged The Goldman Sachs Group Inc. with fraud for its marketing of a subprime mortgage product for institutional investors.
Finra is also focusing on private deals for retail investors, attorneys at the Finra meeting said.
“I think the regulators are looking at non-traditional products, those that are being marketed to a less sophisticated retail audience,” said Neal Sullivan, a partner with Bingham McCutchen LLP. “A classic example of that would be some of the Reg D offerings.”
Mr. Sullivan made his comments after speaking on a panel this morning about enforcement case trends.
“I think you hear from the Finra folks that they're starting to see an uptick in enforcement cases in this area,” he said.
Mr. Sullivan believes there will be an increase in publicly announced private placement cases filed against broker dealers. “And unfortunately," he said, "some will reflect fraudulent practices.”
