FINRA Sanctions Taglich Brothers for Regulation Best Interest and Form CRS Violations

A recent disciplinary action by the Financial Industry Regulatory Authority (FINRA) has resulted in sanctions against Taglich Brothers Inc. (CRD #29102) for violations of Regulation Best Interest (Reg BI), Form CRS requirements, and supervisory control obligations. The settlement shows the critical importance of transparency, conflict management, and firm supervision in protecting retail investors.

According to regulatory findings, Taglich Brothers failed to establish, maintain, and enforce a supervisory system reasonably designed to comply with Reg BI, particularly with respect to conflicts of interest arising from investment recommendations.

The Core Issue: Conflicts of Interest and Regulatory Compliance

Regulation Best Interest requires broker-dealers to act in the best interest of retail investors and to identify, disclose, and mitigate conflicts that could influence recommendations. Regulators determined that Taglich Brothers did not implement reasonably designed policies and procedures adapted to its business model until mid-2022, even though the rule became effective in June 2020.

During the period under review, the firm’s business included raising capital for issuers in public and private offerings while sharing fees and personnel with a related private equity entity. Certain associated persons also held ownership interests in issuers and served as directors of companies whose securities they recommended to retail investors, creating potential conflicts of interest that required proper disclosure and supervision.

Form CRS and Disclosure Failures

FINRA also found that Taglich Brothers failed to deliver Form CRS to certain retail investors who invested in private placement offerings through the firm. Form CRS is designed to provide investors with clear information about services, fees, conflicts of interest, and disciplinary history, helping investors make educated decisions about their financial relationships.

In addition, the firm lacked written supervisory procedures reasonably designed to ensure compliance with Form CRS requirements for an extended period.

Supervisory Control System Deficiencies

The disciplinary action further identified failures in the firm’s supervisory control system. Regulators determined that Taglich Brothers did not conduct required annual supervisory control testing for several years and failed to produce required reports evaluating the effectiveness of its compliance systems. These control failures are considered serious because they prevent firms from identifying and correcting compliance weaknesses.

Sanctions and Remedial Measures

As a result of these findings, Taglich Brothers consented to sanctions without admitting or denying the allegations, including:

– A Censure.
– A $60,000 Fine.
– A requirement to certify that the firm has remediated its supervisory, Reg BI, and Form CRS compliance deficiencies.

What This Means for Investors

Regulatory actions involving conflicts of interest, disclosure failures, and supervision weaknesses can be significant for investors. Such findings may indicate that investment recommendations were not fully aligned with investors’ best interests or that important information was not properly disclosed.

While regulatory sanctions address compliance violations, they do not prevent investors from pursuing their own recovery options. Investors who suffered losses related to private placements, conflicted recommendations, or disclosure failures may still have the right to seek recovery through FINRA arbitration.

If you invested through Taglich Brothers and experienced investment losses, Sonn Law Group may be able to review your situation and discuss potential recovery options.