According to FINRA, Lighthouse Capital Group, LLC was censured and fined $250,000 for failing to establish, maintain, and enforce a supervisory system reasonably designed to ensure it did not engage in general solicitations of private placements.

The firm raised approximately $273 million in capital from selling private placements in reliance on Rule 506(b) of Regulation D, which requires firms to avoid general solicitation and only solicit investors with whom they have a pre-existing, substantive relationship. However, the firm's supervisory system did not consistently monitor or document when it established substantive relationships with prospective investors. The firm failed to systematically collect complete information about prospective investors and lacked a reasonable system to determine when it first developed a substantive relationship with each investor.

As a result, the firm could not always confirm that it had a pre-existing, substantive relationship with prospective investors prior to solicitation. Additionally, the firm's written supervisory procedures failed to define general solicitation or provide sufficient guidance to supervisors about reviewing activities to prevent general solicitation.

Investors should be aware that Rule 506(b) private placements are restricted securities offerings that require firms to follow strict solicitation rules. These rules exist to protect investors by ensuring they have appropriate investment sophistication and relationships before being solicited for risky unregistered securities. Following this action, the firm revised its supervisory systems to require representatives to consistently obtain and document each potential investor's accreditation, investment experience, goals, and financial information prior to any solicitation.