According to FINRA, Terranova Capital Equities, Inc. (CRD #45097), based in New York, New York, was censured, fined $25,000, and required to certify remediation of the issues identified in a Letter of Acceptance, Waiver and Consent (AWC) issued on January 22, 2024.

FINRA found that Terranova Capital Equities engaged in unregistered distributions of securities in contravention of Section 5 of the Securities Act of 1933. Section 5 is a foundational provision of federal securities law that generally prohibits the sale of securities unless they are registered with the Securities and Exchange Commission (SEC) or qualify for an exemption from registration. The firm acted as a placement agent for private offerings and sold securities from those offerings where the issuers failed to qualify for an exemption from registration.

Specifically, the findings stated that each offering claimed exemption from registration under Rule 506(b) of Regulation D of the Securities Act. However, the issuers did not file a Form D for each offering within fifteen calendar days of the first sale of securities, which is a requirement to qualify for the safe harbor exemption. As a result, certain sales were made without a valid exemption. The firm sold the issuers' securities to twelve investors, who invested a total of $996,875. Certain sales from the offerings did qualify for the exemption because they were made within 15 days of the issuer filing Forms D with the SEC. All sales from the offerings were made to accredited investors.

FINRA also found that the firm failed to establish, maintain, and enforce a supervisory system, including WSPs, reasonably designed to achieve compliance with Section 5. The firm did not ensure that securities from the private offerings qualified for an exemption under Regulation D, nor did it conduct any supervisory reviews or surveillance to prevent participation in a distribution of unregistered and nonexempt securities. The firm's WSPs did not provide reasonable guidance regarding when and how the firm should verify that issuers of exempt offerings timely filed a Form D notice with the SEC.

Without admitting or denying the findings, Terranova Capital Equities consented to the sanctions and the entry of findings.

This case is important for investors because it highlights the risks associated with private placements. Registration and exemption requirements exist to ensure investors receive adequate disclosures. When firms fail to verify that proper exemptions are in place, investors may unknowingly purchase securities that were sold in violation of federal law. Investors considering private placements should verify that the offering complies with applicable securities regulations.