FINRA fines Growth Capital Services for communications that do not comply with standards
Growth Capital Services, Inc. has agreed to pay a fine as a part of a settlement with the United States Financial Industry Regulatory Authority (FINRA).
From June 2018 through June 2019, Growth Capital failed to make timely filings with FINRA related to eleven private offerings that it sold. For the eleven private offerings, Growth Capital made the required regulatory filings an average of 143 days late, or 158 days after the first sale of the offerings.
In addition, from June 2018 to June 2020, Growth Capital distributed or made available to potential investors various presentations, websites, offering documents, and other materials related to seven different private placement offerings.
The communications violated the content standards of FINRA Rule 2210(d)(1)(A) and (B) by failing to provide a sound basis for evaluating the proposed investments, and by containing the following misleading statements:
- one offering failed to include reasonable disclosures about risk in the business plan attached to its private placement memorandum; specifically, that the offering was speculative, illiquid, and could result in a total loss of the investment;
- two offerings presented information from less risky investments such as publicly traded securities or bonds but failed to disclose the material differences between the private placements and the less risky investments;
- one offering described itself as having enhanced liquidity, when in fact it was an illiquid investment; and
- one offering included a misleading description of the use of funds, suggesting that the investor would be directly investing in technology companies, when in reality the monies were being invested in another Limited Liability Company that purportedly invested in technology companies.
Five of the offering materials also contained projections of performance in violation of FINRA Rule 2210(d)(1)(F). For instance, four offering documents contained statements projecting effective and annualized yields. A fifth offering document also projected performance, stating that Non-Sponsor Members returns are expected to equal [approximately] 34.5% IRR and over 2.7x multiple on investment.
This way, Growth Capital violated FINRA Rules 2210 and 2010. The company consents to a censure and a fine of $35,000.