According to FINRA, Baker Tilly Capital, LLC was censured and fined $90,000 for willfully violating Exchange Act Rule 10b-9 by permitting material changes to the terms of two related private placement offerings without terminating the offerings and returning funds to investors.

The original private placement memorandum stated that a closing would not occur until the offerings met a minimum contingency of $16 million in investor subscriptions. However, the issuer amended the PPM to state that an initial closing of approximately $6 million would take place later that month. The issuer conducted this closing so certain investors would not lose tax benefits of their investment.

Additionally, amendments to the PPM provided for the first time that alternative funding sources obtained by the offerings' manager could count toward the minimum contingency amount, in addition to investor subscriptions. This alternative funding could include deferred developer fees, construction loans, and other sources not involving investor subscriptions. Since these were material changes to the offerings' terms, the firm was required to terminate the offerings and return investor funds at that time but failed to do so. Ultimately, the issuer conducted a closing with only $10.925 million in investor subscriptions, below the required $16 million minimum contingency.

Investors should understand that minimum contingency requirements in private placements exist to protect investors by ensuring offerings only proceed if sufficient capital is raised. Exchange Act Rule 10b-9 requires that material changes to offering terms trigger termination and return of investor funds, giving investors the opportunity to reconsider their investment decisions based on the new terms.