The Financial Industry Regulatory Authority has fined Cova Capital Partners $30,000 for recommending three private placements that were unsuitable for or not in the best interests of at least some investors, violating Regulation Best Interest.
According to FINRA's order, between June 2018 and December 2021, Cova recommended three private placements to retail customers "without conducting due diligence sufficient to form a reasonable basis" that the offerings were suitable.
As a result, Cova, a broker-dealer with 10 registered representatives based in Syosset, New York, violated Reg BI and FINRA Rules 2111 and 2010.
Further, between June 2018 and December 2023, Cova failed to establish, maintain, and enforce a supervisory system, including written policies and procedures, reasonably designed to achieve compliance with its suitability and best interest obligations in connection with its sale of private placement offerings.
This resulted in Cova willfully violating Reg BI's Compliance Obligation and violated FINRA Rules 3110 and 2010.
"Cova also violated FINRA Rules 5123 and 2010 by failing to make a timely filing in connection with one private placement offering," the order states.
Between June 2018 and February 2020, Cova sold nine investors more than $2 million of a private placement offering, which purported to offer pre-initial public offering shares.
"Moreover, despite knowing that [the issuer] applied markups to the pre-IPO shares — in other words, the issuer charged a higher price to investors than the issuer paid to acquire the shares — Cova did not take reasonable steps to determine the amount of the markups applied [by the issuer] to the shares of the company," FINRA said.
Between October 2019 and 2021, Cova sold 24 investors more than $1. 7 million of a private placement offering. Before selling the offering to these investors, Cova failed to reasonably investigate the issuer's management and thus did not identify that the chief executive officer "was previously the subject of federal and state regulatory actions related to illegal robocalls to senior consumers," the order states.
Additionally, during its due diligence process, Cova failed to investigate information concerning SEC charges filed against two individuals associated with another pre-IPO fund, FINRA said.
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