Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, October 8, 2007

15 Firms Fined for Failure to Deliver Prospectuses

NYSE Regulation announced today that as a result of an industry–wide review of prospectus delivery procedures, it has censured and fined 14 member firms and one former member firm a total of $10.425 million. The firms’ violations include failures to ensure delivery of prospectuses to customers who purchased securities and mutual funds, to deliver product descriptions to customers who purchased Exchange Traded Funds (“ETFs”), and to establish and maintain appropriate procedures of supervision and control with respect to these activities. Two of the firms also failed to ensure delivery of certain documents to customers, such as trade confirmations.  The individual fines ranged from $375,000 to $2.25 million. The NYSE website sets forth the names of the firms and the amount of the fines. In addition, each firm member agreed to certify that its current policies and procedures are reasonably designed to ensure compliance with the current federal securities laws and NYSE rules in these areas.

From July 1, 2003 to October 31, 2004 (the “relevant period”), and in certain cases continuing through 2005, firms experienced varying deficiencies relating to the delivery of prospectuses and/or product descriptions to many customers who purchased securities, stemming in part from the failure to have appropriate policies and procedures in place.

Enforcement conducted this review after it learned in other investigations that prospectuses were not being sent to customers as required by federal securities laws and NYSE rules. As detailed in the decisions announced today, numerous firms experienced one or more deficiencies in connection with one or more offerings and/or products. The nature and extent of the misconduct, in conjunction with other aggravating or mitigating circumstances unique to each firm, such as the level of cooperation, the self-reporting of the deficiencies, and the remediation efforts undertaken by the firms determined the level of the penalties.

NYSE Regulation Enforcement staff that was responsible for these cases has now transferred to the Financial Industry Regulatory Authority (“FINRA”).  In settling these charges brought by NYSE Regulation, the firms neither admitted nor denied the charges.

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