The Financial Industry Regulatory Authority has brought its first disciplinary action against a crowdfunding portal and has terminated the portal’s registration with the self-regulator.
According to the action taken by FINRA on Wednesday, Herndon, Virginia-based UFP—which became a FINRA-registered funding portal in April through its online crowdfunding portal uFundingPortal.com—violated several provisions of the Securities and Exchange Commission’s Regulation Crowdfunding, as well as FINRA portal rules from May to September.
The SEC’s equity crowdfunding rules under the Jumpstart Our Business Startups (JOBS) Act officially took hold on May 16.
FINRA found 16 different issuers that offered securities through UFP’s platform had not filed 10 required disclosures with the SEC, including such information as to the issuer’s financial condition, as well as a description of the issuer’s business.
Six of the 16 issuers also failed to file the names of all directors and officers of the issuer with the SEC, which is required by law.
Specifically, FINRA states that UFP “did not deny access to its platform to any” of the 16 issuers “even though each of them had an impracticable business model, oversimplified and overly optimistic financial forecasts and other warning signs” that signaled investor protection issues.
The action also notes that 13 of the issuers on the UFP platform “claimed wholly unsupported and improbably identical $5 million equity valuations, even though these issuers had a wide range of different business plans none had any assets or history of operations before May 2016.”
FINRA currently oversees 21 crowdfunding portals.
Crowdfunding intermediaries must be registered with the SEC as a broker or a funding portal and become a FINRA member.
UFP neither admitted nor denied FINRA’s actions but consented to the self-regulator’s findings.