According to settlement papers signed with the Financial Industry Regulatory Authority (FINRA), the Chief Compliance Officer (CCO) for IFS Securities failed to conduct adequate due diligence on PGC, a lender planning to finance real estate flipping in Michigan, before 76 clients invested over $3.25 million in this speculative startup.
Before a brokerage firm participates in a private placement, the sale of new securities to the public, FINRA rules require that it conduct due diligence. According to a settlement between FINRA and IFS Securities’ CCO, Mr. Jervis Hough, IFS Securities’ due diligence of PGC failed to comply with FINRA rules.
Among other failures, the due diligence failed to find out that PGC’s CEO had recently filed for bankruptcy, and failed to adequately analyze the prospects of this risky startup. IFS Securities also commissioned a third party due diligence report, but failed to notice that all that report did was analyze marketing documents provided by PGC rather than conducting any independent analysis.
When a firm conducts due diligence, it should carefully consider the value of the drivers of the company’s business, its competitive advantages and disadvantages, its competitors, industry trends, biographical information for key managers, and more.
If IFS Securities had conducted adequate due diligence on PGC, one wonders whether they would have offered this investment to clients at all.
IFS Securities has had other run-ins with FINRA too, including entering into a settlement for buying and selling corporate bonds to clients at excessive markups.
If you have questions about investment losses, the securities litigation attorneys at Investor Defense Law LLP may be able to help, and offer free consultations.
Investor Defense Law LLP is a law firm dedicated to helping investors in California, Georgia, and Washington State recover investment losses. We understand investment fraud and know how to sue investment advisors, brokerage firms, and financial advisors. To learn more, contact an investment fraud attorney at 800.487.4660.