Regulation D Offerings: Issuers, Investors, and Intermediaries
By: Craig McCann, Chuan Qin and Mike Yan (Sep 2023)
The Reg D offering market is
similar to the public offering market in terms of total amount of
capital raised and has been growing rapidly over recent years. The
proceeds sold through Reg D offerings between 2021 and 2022 equal
$4.4 trillion, 13% more than the public offering proceeds during the
same period and a 46% increase over the Reg D offering proceeds
during 2019-2020. Reg D securities have been sold to increasingly
more investors per offering with less amount sold to each investor
over the past decade, suggesting an increasing participation in unregistered
offerings by retail investors. Broker-dealers and registered
investment advisers (RIA) play an important role in reaching
retail investors: Offerings sold by broker-dealers with a larger
retail clientele and offerings sponsored by RIAs with more highnet-
worth individual clients are sold to more investors and raise
less capital from each investor. Investors must be wary of potential
misconduct and conflicts of interest when hiring intermediaries for
investments in unregistered securities. Broker-dealers receiving a
higher rate of sales commissions and those specializing in Reg D
offerings tend to receive more customer complaints arising from
unregistered securities. RIAs advising non-fund clients are more
likely to disclose a conflict of interest in regulatory filings when
they sponsor Reg D offerings, indicating that these advisers invest
their own clients' funds in self-sponsored unregistered securities.
Impact of Zoom on FINRA Claimants
By: Craig McCann, Chuan Qin (Jan 2021)
SLCG presents a new study on the impacts that Zoom and other virtual meeting platforms have on the process of FINRA hearings, citing evidence that the newly updated process has a negative effect on those who are claiming.
Puerto Rico Securities Arbitration Settlements and Awards Likely to Exceed $1.25 Billion (Updated May 15, 2019)
By: Craig McCann, Edward O'Neal, Chuan Qin and Mike Yan (Jun 2019)
SLCG releases its updated Puerto Rico Securities Arbitration Report showing over $600 million paid out so far in settlements and awards with a similar amount likely to be paid out in coming years as a result of brokerage firm customers losses in Puerto Rico.
Reporte de Arbitrajes de Valores en Puerto Rico: entre Acuerdos Transaccionales y Laudos Arbitrales seguramente se excederá de $1.25 billon (15 de may de 2019)
By: Craig McCann, Edward O'Neal, Chuan Qin and Mike Yan (Jun 2019)
SLCG publica su Informe de Arbitraje de Valores de Puerto Rico actualizado que muestra más de $600 millones pagados hasta el momento en acuerdos y adjudicaciones con una cantidad similar que probablemente se pagará en los próximos años como resultado de las pérdidas de clientes de la firma de corretaje en Puerto Rico.
Rating Brokerage Firms by Their Complaint Histories Rather Than by Their Brokers' Histories
By: Craig McCann, Chuan Qin and Mike Yan (Aug 2017)
In our previous research, we ranked brokerage firms based on the proportion of their brokers on December 31, 2015 who had been associated with at least one resolved customer complaint. That approach assigns a higher ranking to a firm if a larger proportion of its current brokers have one or more resolved customer complaint in their career, regardless whether the complaints occurred at their current employer or at a prior employer.
Our new research ranks brokerage firms based on the frequency of customer complaints over conduct at each firm, including both resolved and pending. That is, we rank firms based on their history rather than on their current brokers' histories.
Puerto Rico Securities Arbitration Settlements and Awards Sure to Exceed $1 Billion (Updated November 15, 2018)
By: Craig McCann, Edward O'Neal, Chuan Qin and Mike Yan (Feb 2017)
In 2013, a shrinking economy and the government's loss of continued access to capital markets necessary to make interest payments, refinance principal coming due and to fund an unsustainable government deficit caused Puerto Rico tax exempt bond prices to fall substantially.
Puerto Rico brokerage firms' customers held poorly diversified securities accounts, concentrated in Puerto Rico municipal bonds or closed end funds that held leveraged portfolios of Puerto Rico municipal bonds. Often these accounts were further leveraged using margin debt, lines of credit or proceeds from non-purpose loans recycled through third-party banks.
Reporte de Arbitrajes de Valores en Puerto Rico: 2,983 Reclamaciones, $470 millones en Acuerdos Transaccionales y Laudos Arbitrales Hasta la fecha (07 de septiembre de 2018)
By: Craig McCann, Chuan Qin y Mike Yan (Feb 2017)
SLCG publica su Informe de Arbitraje de Valores de Puerto Rico actualizado que muestra más de $600 millones pagados hasta el momento en acuerdos y adjudicaciones con una cantidad similar que probablemente se pagará en los próximos años como resultado de las pérdidas de clientes de la firma de corretaje en Puerto Rico.
How Widespread and Predictable is Stock Broker Misconduct?
By: Craig McCann, Chuan Qin, and Mike Yan (Apr 2016)
Published in The Journal of Index Investing, Summer 2017, Vol. 26, Issue 2, pp. 6-25.
In this paper we reconcile widely diverging recent estimates of broker misconduct. Qureshi and Sokobin report that 1.3% of current and past brokers are associated with awards or settlements in excess of a threshold amount. Egan, Matvos, and Seru find that 7.8% of current and former brokers have financial misconduct disclosures including customer complaints, awards, and settlements.
We replicate and extend the analysis of broker misconduct in these studies. Qureshi and Sokobin arrive at their low estimate by excluding 85% of all brokers, including those brokers most likely to have engaged in misconduct. Applying Qureshi and Sokobin's restrictive definition of potential misconduct to all brokers, we find that misconduct is much more widespread.
We also evaluate Qureshi and Sokobin's claim that its BrokerCheck website provides helpful information to investors seeking to avoid bad brokers and answer the question posed by Egan, Matvos, and Seru: If BrokerCheck data can identify broker misconduct, why don't investors use that data to protect themselves? We find that BrokerCheck is worthless in its current hobbled form, but that it could easily be modified so that market forces might substantially reduce broker misconduct.
