VectorGlobal WMG, Inc has agreed to pay a fine of $200,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

From at least April 2022 through April 2024, VectorGlobal failed to establish, maintain, or enforce a supervisory system that was reasonably designed to achieve compliance with Section 5 of the Securities Act.

Section 5 of the Securities Act prohibits the offer or sale of unregistered securities without an applicable safe harbor or exemption from registration. Regulation S ( 17 C.F.R. § 230.90 I) provides such safe harbors for certain offers and sales that are deemed to occur outside of the United States. The safe harbors’ many conditions include a prohibition on offers to persons in the United States, subject to certain exceptions; and, for certain categories of debt securities, restrictions on sales to any defined “U.S. person” during an offering until the expiration of a 40-day “distribution compliance period.”

During the relevant period, the firm had no specific written supervisory policies or procedures addressing Regulation S. In addition, it had no surveillance or other supervisory tools to review transactions with respect to Regulation S and no supervisory practices for doing so. VectorGlobal required customers to sign a risk disclosure that included a disclaimer of “U.S. person” status before being approved to purchase structured products offered by the finn pursuant to Regulation S.

However, this practice, by itself, was not reasonably designed to achieve compliance with Section 5.

Among other reasons, the risk disclosures were not kept current once collected initially.

The firm did not have a process to review the disclosures’ “U.S. person” disclaimer, even if the firm had reason to know it may be inaccurate, such as when the customer’s account records reflected a United States residential address or tax domicile. In addition, the risk disclosures did not address any of the other conditions required for an offer or sale to qualify for a Regulation S safe harbor.

During the relevant period, VectorGlobal offered and sold more than $5.8 million of debt securities distributed in reliance on Regulation S to customers whose account records indicated that they were potentially located in the United States or that they may have met the definition of a “U.S. person.” The firm did not investigate these red flags indicating that those transactions, which occurred during the 40-day distribution compliance periods, may not have qualified for a safe harbor.

By May 2024, in response to FINRA’s exam findings, the firm revised its written supervisory procedures and implemented new surveillance tools for Regulation S transactions.

By failing to establish, maintain, or enforce a supervisory system reasonably designed to achieve compliance with Section 5 of the Securities Act of 1933, Respondent violated FINRA Rules 3110 and 2010.

On top of the $200,000 fine, the firm has agreed to a censure.