William Blair Sanctioned by FINRA Over Conflict of Interest Disclosures in Research Reports
The Financial Industry Regulatory Authority (FINRA) fined (Case No. 2013038534401) brokerage firm William Blair & Company LLC (William Blair) concerning allegations that from January 1, 2010 through September 25, 2013 the firm violated several disclosure provisions of FINRA’s research analyst conflict of interest rule, NASD Rule 2711. FINRA rule’s foster transparency in research reports by requiring firms to clearly and prominently provide investors with important information regarding the firms' conflicts of interest. In this case, FINRA alleged that William Blair violated these rules by: (a) failing to present required disclosures in a clear, comprehensive and prominent manner; (b) omitting from certain research reports required disclosures concerning conflicts of interest relating to financial relationships with the subject company; (c) on two occasions failing to define certain research ratings; (d) in certain instances, failing to direct readers in a clear manner to where applicable disclosures could be found; (e) on two occasions, publishing research reports within 10 calendar days following a secondary offering for which it acted as manager; and (f) failing to adequately implement written supervisory procedures reasonably designed to ensure compliance with the rules.
William Blair has been a FINRA firm since 1944 and is headquartered in Chicago, Illinois and conducts a general securities business. William Blair has approximately 891 registered representatives operating from approximately 15 branch offices, and publishes approximately 6,000 research reports each year covering about 600 companies.
As a background, NASD Rule 2711 is intended to provide transparency to investors with respect to conflicts of interest that could impact the objectivity and reliability of research reports issued by brokerage firms. The rule provides that research disclosures "must be clear, comprehensive and prominent." FINRA also provided interpretative guidance concerning the clarity of research disclosures including that member firms may not use conditional or indefinite language in required disclosures, such as "may have a position" in any of the subject company's securities. FINRA finds that conditional or indefinite language lacks the specificity required under the rules. Additionally, according to the rules research reports may not include disclaimers that contradict or are inconsistent with required disclosures. FINRA’s guidance also covers how disclosures are to be made including that references on the front page of a research report to where disclosures are located must be separated from the report body's text, and in larger font size than the body text, and disclosures that are not required must be clearly separated from required disclosures and labeled accordingly.
FINRA found that William Blair’s reports failed in several respects to make clear, comprehensive and prominent disclosures as required. For example, FINRA found that William Blair used the following indefinite or conditional statement in certain research reports: "William Blair & Company, LLC receives or seeks to receive compensation for investment banking services from [the subject company]." FINRA concluded that this type of disclosure was indefinite or conditional language, which appeared in in most of the 17,046 research reports published during the relevant period, lacked the specificity required under the rules. Additionally, William Blair included the conditional statement in certain research reports that "William Blair & Company, L.L.C. or its affiliates may buy and sell the securities referred herein, may make a market therein, and may have along or short position therein." FINRA found that this conditional statement appeared in 379 research reports published in January 2010 was not clear, comprehensive and prominent. Finally, FINRA found that William Blair's disclosures were not sufficiently prominent in that the firm's research reports did not clearly identify the disclosures required by the rule.
Investors who have suffered losses may be able recover their losses through securities arbitration. The investment attorneys at Gana LLP are experienced in representing investors in cases where their broker has acted inappropriately. Our consultations are free of charge and the firm is only compensated if you recover.