According to FINRA, National Securities Corporation was censured, fined $300,000, and ordered to pay disgorgement of $363,447.67 in commissions for deceiving investors in a pre-IPO offering.

The firm misled customers into believing that a pre-IPO offering had acquired, or would be able to acquire, shares of a company at a maximum price of $9.75 per share. However, the firm had done no due diligence to determine if shares were available at that price from any seller. Despite this, the firm twice approved the closing of escrow on investor funds, even though it had failed to locate any shares at the represented price.

The firm closed escrow knowing that doing so would result in it receiving placement fees and investors receiving welcome letters that falsely suggested they now had rights to shares at the represented price. When some investors inquired about their investments, the firm's representatives negligently misrepresented that shares had been purchased at $9.75, when they had not been. In reality, a seller of shares was not identified until more than ten months after the firm had approved disbursement of investor funds.

The firm failed to disclose the true status of the offering to investors. It did not make investors aware of the changes to their investments until the company's IPO was imminent, by which time investors had been misled for months about the status of their investment.

The findings also revealed supervisory failures. The firm failed to reasonably enforce its written procedures concerning pre-IPO share offerings and failed to supervise the head of its pre-IPO business. The firm approved the sale of interests without investigating whether shares could be acquired at the listed price.

Investors should understand that pre-IPO investments carry significant risks and require thorough due diligence. Firms must locate actual shares before taking investor money and closing escrow. When a firm cannot deliver what it promised, it must immediately disclose this to investors rather than collecting fees and issuing misleading communications. Always verify claims made about pre-IPO opportunities and be skeptical of deals that seem too good to be true.