FINRA announced that it has removed SW Financial as a broker-dealer due to its wrongdoings.
These wrongdoings include making false statements to clients when selling pre-IPO securities, excessively buying and selling securities in customer accounts, and not properly monitoring their representatives.
FINRA, a financial organization, suspended the co-owner and CEO of a firm, Thomas Diamante, for nine months, fined him $50,000, and required him to take an exam if he wants to register as a general securities principal or investment banking representative in the future.
FINRA discovered that between 2018 and 2021, Diamante and SW Financial gave false information and neglected to include important information when they sold investments in companies before they went public. This goes against FINRA rules and the requirement to tell customers all the facts that could affect their decision before they invest.
SW Financial misled potential investors by saying they would get only a 10% sales commission for selling certain pre-IPO securities, when in fact they had an agreement with the issuer that gave them an extra 5% commission plus half of any profits.
SW Financial sold the private offerings to 171 people, including 163 retail customers. The firm and its owners got around $2 million as extra pay. This was a big problem because it could have changed the advice given by SW Financial. And they should have been open about it.
Diamante and SW Financial did not take the necessary steps to make sure that the information they were giving customers was accurate. They did not check to make sure that the company selling the shares actually had the shares it was offering. This is prohibited by both FINRA’s suitability rule and Reg BI’s Care Obligation. This rule requires brokers and their staff to make sure that they have a reasonable basis for believing that the recommendation they are making is in the best interest of their customers.
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