FINRA Censures, Fines Miami, Florida Firm E.S. Financial Services, Inc.
E.S. Financial Services, Inc. (CRD #104316, Miami, Florida) submitted a Letter of Acceptance, Waiver and Consent in which the firm was censured and fined $200,000. See FINRA Case #2010024826501.
Without admitting or denying the findings, the firm consented to the described sanctions and to the entry of findings that it served as a placement agent and solicited certain non-U.S. persons to invest in a commercial paper program offered by a firm affiliate located outside the United States. The commercial paper program was offered and sold exclusively to non-U.S. persons pursuant to Regulation S.
At certain times, in connection with the firm's sales of the investments, the firm provided a customized document to each of the customers and/or prospective customers, in which the firm included the program in the cash component of the customer's portfolio alongside U.S. Treasuries and other commercial paper products; placed the program within investment options described as conservative; and that the main objective of investing in this category was to reduce global risk as well as to generate some income. The findings stated that the firm recommended investing in the program over U.S. Treasuries or other commercial paper if the customer wanted a higher-yielding option.
Contrary to the contents of the investment proposals, the program was not a cash component, nor was it necessarily a conservative, low-risk investment. These representations amounted to false, exaggerated or unwarranted statements in these materials. The findings also stated that the firm posted an information memorandum on a password-protected website accessible to customers; the memorandum did not adequately detail certain risks associated with investing in the program.
The firm also failed to conduct adequate due diligence relating to its sales of the commercial paper program, and failed to adopt, maintain and enforce adequate written supervisory procedures pertaining to its sale of the investments until nearly four years after it began selling the investments. The findings further included that the firm failed to adopt, maintain and enforce written due diligence procedures tailored to its sale of the investments. Although all of the investments were repaid on a timely basis at maturity and no customer lost money, the firm's failure to implement written due diligence procedures nevertheless led it to fail to conduct a reasonable investigation concerning various matter concerning the investments.
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