The Financial Industry Regulatory Authority (FINRA) recently fined and censured Cleveland-based securities broker-dealer McDonald Partners, LLC for alleged failures to conduct due diligence in connection with private placement offerings. The regulator found that, between 2013 and 2019, McDonald Partners participated in several private-placement offerings that were marred by mismanagement and misconduct, including a 2019 offering that resulted in the sale of $4.25 million in interests to customers of the firm. Regarding the 2019 offering, FINRA specifically found that:
- The firm only reviewed the limited documents and information that the issuer provided.
- The firm did not verify the issuer’s claim that it had purchased convertible debt from a start-up marijuana business.
- The firm failed to reasonably consider the serious concerns that it had previously identified about the marijuana business’s prospects.
- The firm failed to identify and investigate potential red flags associated with the private placement memorandum for the offering.
FINRA Rules require member firms to conduct a reasonable investigation of private-placement offerings before recommending them to their customers. Specifically, firms should conduct a reasonable investigation concerning: (1) the issuer and its management; (2) the business prospects of the issuer; (3) the assets held by or to be acquired by the issuer; (4) the claims being made by the issuer; and (5) the intended use of the proceeds of the offering. A more thorough investigation is appropriate for smaller companies of recent origin, and the presence of red flags should alert the firm to the need for further inquiry.
McDonald Partners has been a FINRA member since 2005. It has approximately 45 registered representatives who operate out of the firm’s home office in Cleveland, Ohio, and five branch offices in Ohio and Michigan. In the last 5 years, the firm has been confronted with a host of investigations and enforcement actions by securities regulators, including a cease-and-desist order from the SEC in 2021. The firm also lost a customer arbitration in 2021 after a customer brought claims alleging securities fraud, breach of fiduciary duty, and negligence. The firm was ordered to pay $160,000 in damages to the customer.
If you have suffered losses due to private placement investments recommended by McDonald Partners, you may have a claim for money damages. Contact the investment fraud and malpractice attorneys at Mika Meyers for a free, no-obligation consultation.
If you have suffered investment losses as a result of malpractice or misconduct our experienced team of investment fraud attorneys may be able to assist you in recovering some or all of your losses. Call us toll-free at 888-607-4819 for a free consultation or email us through our “Contact” page to schedule a free consultation.