LifeSci Capital Settles with FINRA Over Violations in Public Offerings

LifeSci Capital, a New York-based firm, has reached a settlement with FINRA following several violations related to its handling of underwriting compensation and its failures in adhering to regulatory filing requirements. The firm, a FINRA member since 2014, has agreed to a settlement that includes a $900,000 fine, censure, and a commitment to improve its supervisory systems to better comply with securities regulations.

In 2020 and 2021, LifeSci Capital participated in the initial public offering (IPO) of LifeSci Acquisition II Corp. (LSAQ), a special purpose acquisition company (SPAC). The issues at the heart of the settlement revolve around LifeSci’s receipt of underwriting compensation that was both unreasonable and inaccurately described in offering documents and filings made with FINRA.

The firm’s actions violated key FINRA rules, including Rule 5110, which governs corporate financing practices to ensure underwriting arrangements are fair. Specifically, LifeSci Capital’s handling of compensation in the LSAQ offering came under scrutiny. The underwriting terms that were approved by FINRA differed significantly from the terms actually implemented in the offering.

One of the key issues was that LifeSci received private warrants and securities that were intended to be exercisable for no longer than five years, but the final agreements allowed for a much longer exercise period, violating FINRA’s rules governing such terms. Additionally, LifeSci’s filings with FINRA inaccurately described the lock-up period and compensation structure, causing further compliance issues.

The Fallout & Financial Penalties
Beyond the discrepancies in compensation and documentation, LifeSci Capital also failed to make required filings with FINRA on 13 occasions between July 2020 and April 2023. The filings, which are essential for transparency and regulatory oversight, were delayed or missing altogether. Some of these filings were as much as seven months late.

LifeSci’s failure to maintain a proper supervisory system also played a role in the violations. From its inception in 2014 through the present, the firm had no written supervisory procedures (WSPs) in place to ensure compliance with FINRA Rule 5110, nor did it implement a system to monitor underwriting compensation or timely filings. This lack of supervision left the firm vulnerable to repeated violations.

In light of these violations, LifeSci Capital has agreed to a censure and will pay a $900,000 fine. The firm also committed to taking corrective actions, including improving its supervisory systems and filing procedures. Within 60 days of the acceptance of this settlement, LifeSci’s senior management must certify that the firm has addressed the issues and implemented the necessary changes.

Moreover, the firm has agreed to submit additional documentation and supporting evidence to FINRA, demonstrating that the corrective steps have been properly implemented. FINRA has also made it clear that it will closely monitor LifeSci Capital’s progress in meeting these commitments.

This settlement highlights the importance of accurate filings, fair underwriting practices, and robust internal supervisory systems for firms engaging in public offerings. It serves as a reminder to industry players that FINRA’s oversight extends beyond individual offerings and requires firms to maintain ongoing compliance with all relevant rules and regulations.

LifeSci Capital has chosen to settle the matter without admitting or denying the findings but has agreed to the terms as part of the settlement process. With the penalties and corrective actions in place, the firm will need to work closely with FINRA to ensure these issues don’t arise again in the future.

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