FINRA fines DAI Securities
DAI Securities, LLC has agreed to pay a fine of $50,000 as part of a settlement with the Financial Industry Regulatory Authority (FINRA).
Between May 14, 2018, and June 29, 2018, DAI Securities negligently failed to inform four investors in an offering related to GPB Capital Holdings, LLC that the issuer failed to timely make required filings with the Securities and Exchange Commission, including filing audited financial statements.
GPB Capital is a New York-based alternative asset management firm founded in 2013. GPB Capital serves as the general partner for limited partnerships formed to acquire income-producing companies. From 2013 through 2018, GPB Capital launched several limited partnerships, each focused on acquiring controlling interests in certain private sector companies.
The GPB Capital limited partnerships included GPB Automotive Portfolio, LP, which was formed in 2013 to acquire and operate automotive dealerships.
On April 27, 2018, GPB Capital released what it characterized as important updates regarding the audited financial statements for certain of its limited partnerships, including Automotive Portfolio. The letters, which were sent to the broker-dealers that sold GPB Capital-related investments, including DAI Securities, stated that GPB Capital was in the process of registering certain classes of securities issued by certain of the limited partnerships, including Automotive Portfolio, with the SEC.
As part of that process, Automotive Portfolio was required to file audited financial statements. The letters further stated that the delivery of Automotive Portfolio’s audited financial statements (which were due to be filed by April 30, 2018) would be delayed pending the completion of a forensic audit. Specifically, GPB Capital disclosed that it and its auditors “determined that it would be prudent to hire a third-party firm to complete a forensic audit in order to endeavor to put [the former partner’s] counterclaims and other allegations to rest.”
The offering documents for Automotive Portfolio were not timely amended to disclose that the partnership would be delayed in filing its audited financial statements with the SEC.
While DAI Securities received the letter from GPB Capital notifying them of the delays and GPB Capital’s stated intention to complete a forensic audit, DAI Securities sold limited partnership interests in Automotive Portfolio to four customers after that announcement.
The principal value of those four sales, which occurred between May 14, 2018, and June 29, 2018, totaled $300,000. DAI Securities received a total of $25,500 in commissions from these sales.
In connection with these four sales, however, DAI Securities did not inform the customers that Automotive Portfolio had not timely filed its audited financial statements with the SEC or the reasons for the delay. The delay in filing audited financial statements and the reasons for it was material information that should have been disclosed.
By negligently omitting material facts, DAI Securities violated FINRA Rule 2010.
On top of the $50,000 fine, the firm has agreed to a censure and partial restitution of $25,500.