According to FINRA, BNA Wealth, Inc. was censured and fined $45,000 for conducting municipal securities business without proper registration and for selling private placements before amending its membership application.
The firm sold approximately $260,000 in 529 college savings plans to customers despite knowing it was required to register with the Municipal Securities Rulemaking Board (MSRB) and employ a qualified municipal securities principal before engaging in such business. While the firm received no up-front commissions, it collected trailing commissions from these sales. The firm also failed to establish adequate supervisory procedures for municipal securities, instead allowing a registered representative who was not qualified as a municipal securities principal to review and approve transactions.
Additionally, BNA Wealth sold private placements to customers when its membership agreement did not authorize such activity, implementing a material change in business operations without first obtaining FINRA approval. The firm also lacked adequate procedures for conducting and documenting due diligence on the private placements it recommended to customers.
Municipal securities, including 529 plans, are subject to specific regulatory requirements because they involve government entities and tax-advantaged savings. The MSRB establishes rules specifically for municipal securities dealers to protect investors in these markets. Firms must have properly qualified principals supervising this business to ensure compliance with these specialized rules.
Private placements are unregistered securities offerings that carry significant risks and require firms to conduct thorough due diligence before recommending them to customers. This case demonstrates the dangers when firms expand their business into new product areas without proper authorization, registration, and supervisory infrastructure. Investors should verify that firms are properly authorized to sell the products they offer and have adequate supervisory systems in place.
