NASD found that BCSI conducted a 2004-2005 public offering of approximately $60 million in limited partnership investments without obtaining the necessary NASD clearance. Moreover, BCSI continued selling the limited partnerships even after receiving notice from NASD's Corporate Financing Department that it needed to provide additional information before the offering could commence.
Separately, NASD found that BCSI received approximately $700,000 in excessive underwriting compensation from a 2002 public offering, and inaccurately disclosed its underwriting compensation in the prospectus for that 2002 offering.
"Full and accurate disclosure of material information in public offering documents is critical for the operation of our capital markets," said NASD Senior Vice President and Acting Head of Enforcement James Shorris. "NASD's Corporate Financing rules are designed to ensure that the required disclosures are made to investors and that the terms of each underwriting are fair and reasonable."
NASD's Corporate Financing rule prohibits any member firm from participating in certain public offerings of securities unless specified offering documents have been filed and reviewed by NASD's Corporate Financing Department. Further, the member firm cannot begin selling the public offering until the Corporate Financing Department has notified the firm in writing that NASD has no objections to the proposed underwriting. NASD rules also require that all offering expenses be fair and reasonable and limit a broker dealer's compensation based on the type of offering and the gross proceeds in the offering. Further, underwriting compensation must be disclosed accurately in the offering's prospectus.
NASD found that, on Aug. 23, 2004, BCSI began a public offering of certificates issued by Boston Capital Tax Credit Fund V L.P., even though the firm had not received the necessary NASD clearance. Moreover, on the following day, NASD's Corporate Financing Department issued a "Defer Opinion Letter" to BCSI, with a copy to its outside counsel, requesting further information about the proposed offering. NASD required a response to that letter, including the requested information, before the offering could commence. BCSI, however, continued the offering and sold approximately $60 million in certificates without obtaining the required NASD clearance.
NASD also found that, in connection with a 2002 public offering of limited partnership interests, BCSI received approximately $700,000 more in underwriting compensation than permitted under NASD rules. The firm failed to disclose its true compensation in the pre-offering filing it submitted to NASD's Corporate Financing Department and in the prospectus distributed to investors.
In addition, NASD found that BCSI lacked an adequate supervisory system and written procedures relating to the firm's underwriting of public securities offerings. The firm failed to provide for adequate follow-up and review to ensure that the public offerings received the necessary regulatory approvals, that the firm complied with underwriting compensation limitations and that there was accurate and complete prospectus disclosure.
BCSI's system for forecasting and accounting for underwriting expenses was also found to be inadequate. Throughout the relevant period, BCSI and its affiliates shared common operating and accounting procedures and systems. The firm's procedures were not reasonably designed to ensure that its wholesaling and related expenses/reimbursements for each offering were recorded separately from those of the issuer. As a result, BCSI improperly allocated certain underwriting expenses as issuer costs.
In concluding this settlement, BCSI neither admitted nor denied the charges, but consented to the entry of NASD's findings.
Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2005, members of the public used this service to conduct more than 4.3 million searches for existing brokers or firms and requested more than 194,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com. Investors can also access this service by calling (800) 289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our Web site at www.nasd.com.
("Copyright 2005 National Association of Securities Dealers, Inc.")
