According to FINRA, Haywood Securities (USA) Inc. was fined $175,000 for recommending sales totaling almost $11 million of private placements to U.S. customers without conducting reasonable due diligence and for failing to establish a supervisory system reasonably designed to achieve compliance with Regulation Best Interest.

The firm recommended Canadian non-brokered private placements (NBPPs) where it acted as a finder rather than as an agent of the issuer. The firm's due diligence process was severely deficient, generally consisting of nothing more than a search and review of the issuer's recent public filings. When the firm obtained information from issuers, it sought minimal information and relied mostly on issuer representations with little to no independent verification.

The firm generally did not conduct any independent investigation such as inquiring about litigation or disciplinary problems, reviewing key contracts, exploring business plans, or conducting site visits. The firm also did not generally search for regulatory history or maintain evidence and documentation of its due diligence efforts for these offerings.

Additionally, the firm failed to file required FINRA Rule 5123 filings in connection with the sale of Canadian NBPPs because it incorrectly believed that unsolicited transactions where it received no finder's fee were exempt, when in fact they did not qualify for any exemption.

For investors, this case underscores the critical importance of proper due diligence before recommending investments, particularly for private placements which are inherently risky and illiquid. When firms fail to conduct thorough independent investigations of offerings they recommend, investors are exposed to investments that may not be suitable or may involve undisclosed risks. Investors should always ask what due diligence their broker conducted before accepting recommendations for private placements or other complex investments.