The Financial Industry Regulatory Authority has censured and fined Newbridge Securities Corporation $225,000 for failing to properly supervise the sale of complex securities such as structured notes and leveraged, inverse, and inverse-leveraged exchange-traded funds.
In addition, Newbridge’s director of investment banking, Bruce Jordan, was suspended for two months and fined $5,000 for failing to supervise a private placement offering, created by three Newbridge representatives, for which Newbridge was the exclusive placement agent.
According to the letter of acceptance, waiver and consent issued by FINRA, between July 2013 and September 2015, Newbridge representatives solicited 976 retail customers to invest approximately $96.9 million in structured products, and the customers invested $54.9 million of those funds in non-principal protected structured notes (most commonly, steepeners).
Structured products are debt securities derived from or based on a single security, a basket of securities, an index, a commodity, a debt issuance or a foreign currency. Structured products typically have two components—a note and a derivative. Some structured products offer full protection on the principal invested, whereas others, such as steepeners, offer limited or no principal protection and carry greater risk.
Newbridge’s system for supervising the suitability of structured product recommendations centered on “product profiles” that its compliance department created for each product sold by the firm. For example, the product profile for non-principal protected notes stated that representatives were not allowed to solicit orders from customers 70 years of age or older.
However, FINRA claims that Newbridge failed to establish any supervisory procedures to ensure that its employees who were tasked with supervising the recommendations were reviewing for compliance with the product profiles.
In addition, the regulators said that no firm principal reviewed the structured product recommendations made by representatives of the firm’s branch in Syosset, New York—which included more than $26 million in non-principal protected structured notes—for compliance with the firm’s product profile prohibitions or for suitability.
Between 2015 and 2016, Newbridge earned $2.3 million in connection with its participation in the sale of private placements. Although private placements were a significant portion of the firm’s business, FINRA claims that the firm failed to comply with multiple applicable securities laws and regulations and FINRA Rules in connection with the sale of one private offering.
Newbridge acted as the exclusive placement agent for the contingent offering of CJS Fund I, which was created by three Newbridge representatives through their separate investment advisory firm. Newbridge solicited customers to invest in CJS Fund I, and in total, 80 Newbridge customers invested approximately $5.8 million.
FINRA claims that Newbridge and Jordan, the director for investment banking, failed to conduct reasonable due diligence on the fund and relied primarily on due diligence conducted by the fund itself.
While Jordan has no prior disciplinary history, Newbridge paid $45,000 in fines to FINRA in two separate instances in 2011. In one instance, the firm reportedly failed to supervise the sale of private offerings sold to its customers and failed to conduct adequate due diligence for 15 different unregistered offerings. In the other, the firm permitted its registered representatives to sell two private placement offerings using memoranda that contained material omissions of facts, FINRA claims.