Finra hits National Securities with $9 million penalty

The regulator sanctioned the broker-dealer for violations related to its marketing of securities it had underwritten and failings related to sales of GPB private placements.

The Financial Industry Regulatory Authority Inc. on Thursday said it had sanctioned National Securities Corp. for a variety of problems, ranging from artificially influencing the market for securities it had underwritten to negligently omitting to inform clients about GPB Capital Holdings’ inability to file audited financial statements for its private placements on time.

According to the Finra settlement, from June 2016 to December 2018, National Securities Corp., while acting as an underwriter for three initial public offerings and seven follow-on offerings, violated securities industry rules by unlawfully inducing or attempting to induce certain customers to purchase stock in the aftermarket of the offerings prior to their completion.

Industry rules prohibit underwriters, during a restricted period, from attempting to induce any person to bid for or purchase any offered security in the aftermarket, according to Finra. “National Securities Corp.’s conduct was aimed at artificially stimulating demand and supporting the price of the offered securities, which tended to be thinly traded, in the immediate aftermarket,” the regulator said in a statement.

National Securities, which is based in Boca Raton, Florida, and has 574 registered reps and advisers, agreed to the Finra settlement without admitting to or denying Finra’s findings.

The firm will pay: disgorgement of $4.8 million in net profits it received for underwriting the 10 public offerings; $625,000 in restitution for failing to disclose material information in 2018 to customers who purchased GPB Capital Holdings private placements; and a $3.6 million fine for this misconduct and various other supervisory and operational violations.

In April, Finra sanctioned National Securities $663,000 for deceiving investors in December 2017 and January 2018 about the price of shares as part of a private placement offering.

“National Securities Corp. has worked in full cooperation with Finra and has undertaken several measures to resolve the matters referenced while continuing to enhance its regulatory compliance posture,” a spokesperson wrote in an email. “In addition, National Securities Corp. has since exited its investment banking business and has taken active steps to de-risk the firm, including eliminating high risk business lines and registered representatives.”

In 2018, B. Riley Financial announced that it was purchasing a large stake in National Holdings Corp., the parent of National Securities Corp., and in 2021 B. Riley said it was buying the rest of the company shares it didn’t already own. The spokesperson noted that the referenced events in the Finra settlement relate to National Securities Corp. “legacy matters” that occurred before B. Riley’s 2021 acquisition of National Holdings.