According to FINRA, Sanctuary Securities, Inc. was fined $60,000 and ordered to pay $48,000 in restitution to customers for negligently failing to inform investors that issuers had not timely filed required SEC documents.

The findings revealed that the firm sold limited partnership interests in private sector companies totaling $600,000 after being notified that delivery of the issuers' audited financial statements would be delayed pending completion of a forensic audit. Despite this knowledge, the firm's representatives did not inform customers that the issuers had failed to timely file their audited financial statements with the SEC or explain the reasons for the delay. This information was material and should have been disclosed to investors.

The situation became even more serious when the SEC subsequently filed a complaint against the alternative asset management firm and other defendants, alleging securities fraud in violation of federal law. The U.S. Department of Justice also brought criminal charges against the firm's founder, CEO, and two other executives, charging securities fraud, mail fraud, and wire fraud. The firm received $48,000 in commissions from these sales.

This case illustrates a fundamental principle of securities regulation: material information must be disclosed to investors. When issuers fail to file required financial statements, particularly when the delay involves a forensic audit, this raises significant red flags about potential problems with the company's finances or operations. Forensic audits are typically conducted when there are concerns about fraud, misrepresentation, or other serious financial irregularities.

Investors should understand that broker-dealers have an obligation to disclose material information that could affect an investment decision. The failure to timely file audited financial statements, especially when coupled with a forensic audit, is precisely the type of information that could cause a reasonable investor to reconsider or decline an investment. When firms fail to meet this obligation, they not only violate regulatory requirements but also deprive investors of the information needed to make informed decisions about risk.