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Home > Blog > SEC to Broker/Dealers: Know What You’re Selling

SEC to Broker/Dealers: Know What You’re Selling

Doomed investment deals involving private placements have forced a number of broker/dealers to close their doors this year. Meanwhile, investors in those deals lost millions of dollars because in, many instances, the broker/dealer responsible for recommending the investments failed to perform their due diligence on the financial product they were touting.

As reported May 21 by Investment News, the Securities and Exchange Commission (SEC) is now taking a deeper look at “several areas of high risk” in the securities industry. That includes the due diligence of broker/dealers and their net capital levels.

“We’re looking at due diligence,” said Julius Leiman-Carbia, associate director in charge of the National Broker-Dealer Examination Program in the SEC’s Office of Compliance Inspections and Examinations, in the Investment News article. Leiman-Carbia, who participated in a panel discussion on Monday in Washington as part of the annual meeting of the Financial Industry Regulatory Authority (FINRA), added that he wonders if brokers truly understand all of the products that they sell to clients.

In addition to focusing on due diligence, the SEC is examining “the division between the investment adviser and broker/dealer sides” of firms that are dually registered, including the various types of controls that exist when money is [placed with] the investment adviser.

The SEC also is looking at the country as a whole in an effort to pinpoint specific areas where investor fraud – especially elder financial fraud – is more prevalent.

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