Oak Hill Securities Fined $125K for Violations in Handling Private Placements
The Financial Industry Regulatory Authority has censured and fined Oak Hills Securities Inc., a brokerage firm in Oklahoma City, for multiple rule violations over a five-year period. The firm, which has been a FINRA member since 2008, was cited for misconduct related to seven private placements it handled between September 2019 and June 2024.
The disciplinary action centers on three main areas of misconduct by Oak Hills, which primarily sells Oklahoma tax credit direct participation investment programs.
Failure to Refund Investor Funds
Oak Hills was the exclusive placement agent for seven private placements that were sold on a “best-efforts” or “part-or-none” basis. These offerings had a minimum contingency amount that needed to be met by a specified date. According to the findings, Oak Hills subsequently reduced these minimums but willfully failed to return investor funds as required by law. In four of the seven offerings, the firm failed to meet even the reduced contingency amounts, yet continued to accept subscriptions and close the offerings.
This conduct violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-9, as well as FINRA Rule 2010. FINRA had previously warned Oak Hills about similar conduct in 2014.
Failure to Escrow Investor Funds
In six of the private placements from September 2019 to December 2020, Oak Hills failed to promptly deposit investor funds into a separate escrow account with an unaffiliated bank. Instead, the firm deposited the funds into a bank account controlled by the issuer of the securities.
This violated Section 15(c)(2) of the Exchange Act and Rule 15c2-4, which are designed to protect investor money until the offering contingency is met. Oak Hills was required to use an escrow account because its minimum net capital was less than $250,000. While no customer complaints or harm were reported, the practice was a violation of regulatory standards.
Untimely Filing of Documents
For two of the private placement offerings, Oak Hills failed to file required documents with FINRA in a timely manner, violating FINRA Rule 5123 and FINRA Rule 2010. The firm filed the documents 61 and 153 days late, respectively. This was not the first time the firm had been warned about late filings; FINRA had previously addressed similar issues with the firm in 2014.
In addition to a censure and $125,000 fine, Oak Hills agreed to a letter of acceptance, waiver, and consent, settling the matter without admitting or denying the findings.
The firm also acknowledged that its willful violation of Section 10(b) and Rule 10b-9 makes it subject to a statutory disqualification from FINRA membership. It waived its right to appeal the sanctions.
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