SEC Charges Broker-Dealer and Issuer with Shelf Offering Violations
Sept. 3, 2020
File No. 3-19957
September 3, 2020- The Securities and Exchange Commission today announced charges against National Financial Services LLC (NFS) and FuelCell Energy, Inc., for failing to deliver final prospectuses to purchasers in connection with the public sale of more than $148 million in FuelCell stock.
According to the SEC's orders, NFS, a registered broker-dealer and investment adviser and subsidiary of FMR LLC, which provides financial services through its subsidiaries primarily under the name "Fidelity Investments," sold FuelCell common stock to the public on behalf of the issuer in five at-the-market delayed shelf offerings. The orders find that for each offering, FuelCell filed a base prospectus with the registration statement, but failed to file a final prospectus as required when it took the securities "off the shelf" and sold them into the market. The order charging NFS finds that as the statutory underwriter, NFS had an obligation to ensure delivery of final prospectuses, which describe the specific type and quantity of securities being offered, the specific manner and timing of distribution, and the nature and terms of agreements with underwriters, dealers, and agents. The order further finds that NFS had no policies and procedures in place at the trading desk that conducted the sales that might have prevented or detected the violations, and that NFS did not take timely and effective corrective action when certain underlying facts concerning these sales came to the attention of compliance and legal personnel at NFS.
The SEC's orders find that NFS and FuelCell violated the prospectus delivery provisions of Section 5(b) of the Securities Act of 1933. The order charging NFS finds that it violated the underwriter prospectus delivery provisions of Securities Act Rule 173, and failed reasonably to supervise the traders that sold the FuelCell securities within the meaning of Section 15(b)(4)(E) of the Securities Exchange Act of 1934 and Section 203(e)(6) of the Investment Advisers Act of 1940. Without admitting or denying the SEC's findings, NFS and FuelCell have agreed to cease and desist from committing or causing any future violations of the charged provisions. In addition, NFS has agreed to be censured and has agreed to disgorge $797,905 in commissions, pay prejudgment interest of $163,288, and pay a penalty of $1,500,000. The SEC's order against FuelCell recognized the company's cooperation and self-report, both of which the SEC considered in determining not to impose a penalty against the company.
The SEC's investigation of NFS and FuelCell was conducted by David T. Frisof, with the assistance of Devon A. Brown and Hope Hall Augustini. The case was supervised by Brian O. Quinn and Carolyn M. Welshhans.