Series 39 cheat sheet

DPP structures include limited partnerships, non-listed REITs, oil and gas programs, and equipment leasing funds; interests are generally illiquid with no established trading market.

In a limited partnership DPP the general partner manages the program and owes fiduciary duties, while limited partners are passive investors whose liability is limited to their capital contribution.

Public DPP offerings must be registered with the SEC (typically on Form S-1) and sold by prospectus; private placements rely on Regulation D Rule 506(b) or 506(c).

Rule 506(b) permits an unlimited number of accredited investors plus up to 35 non-accredited purchasers but prohibits general solicitation; Rule 506(c) permits general solicitation only if all purchasers are accredited and their status is verified.

Subscription funds must be impounded in escrow until the minimum offering amount is raised; if the minimum is not reached, funds are returned and no securities are sold.

FINRA Rule 2310 generally caps organization and offering expenses at 15% of gross proceeds and total underwriting compensation at 10% of gross proceeds.

FINRA Rule 2310(c) requires a participating member to conduct a reasonable due diligence investigation of the sponsor, the program, and the proposed use of proceeds.

DPP tax attributes flow through to investors; IRC Section 469 generally limits passive losses to passive income, and oil and gas programs may generate intangible drilling cost deductions and depletion allowances.

A registered principal must review and approve each DPP purchase for suitability before order entry, applying FINRA Rules 2111 and 2310.

Suitability review must document the customer's financial profile, investment objectives, risk tolerance, liquidity needs, and existing DPP concentration.

DPP sales literature must be approved by a registered principal and, for many items, filed with FINRA Advertising Regulation within 10 business days of first use under Rule 2210(c).

Communications must be fair and balanced; projected distributions or returns may not be presented as guaranteed and must disclose illiquidity and risk of loss.

Rule 3110(b)(4) requires principals to review outgoing correspondence and internal communications relating to DPP sales.

Rule 3110(b)(6) requires a principal to review each customer complaint; DPP complaints alleging misrepresentation or unsuitability may trigger Rule 4530 reporting.

Written supervisory procedures must address DPP-specific risks: escrow release, compensation limits, sponsor due diligence, and concentration controls.

FINRA Rule 3110 requires a member to establish and maintain a system of supervision, including written supervisory procedures reasonably designed to achieve compliance.

Each registered representative must be assigned to a registered principal responsible for supervising that representative's activities.

Rule 3110(a)(7) requires registered persons to attend an annual compliance meeting or complete equivalent annual compliance training.

Rule 3120 requires annual testing and verification of the supervisory control system, with a report to senior management.

Rule 3130 requires the CEO or equivalent officer to certify annually that the member has processes to establish, maintain, and enforce compliance policies.

Rule 3210 requires an associated person to obtain written approval from the employing member before opening a securities account at another broker-dealer.

Rule 3270 requires prior written notice before a registered person engages in outside business activities; Rule 3280 requires prior written approval for private securities transactions.

Rule 3220 limits gifts and entertainment given to persons associated with another member to $100 per person per year.

FINRA is a self-regulatory organization; Rule 2010 requires members to observe high standards of commercial honor and just and equitable principles of trade.

Registration uses Form U4 for representatives and Form BD for firms filed through CRD; a Form U5 must be filed within 30 days of a representative's termination.

Rule 4530 requires members to report specified regulatory events, including certain customer complaints and internal conclusions that a rule violation occurred.

FINRA disciplinary proceedings follow the Rule 9210 series: complaint, answer, hearing panel, appeal to the National Adjudicatory Council, then SEC review.

Rule 12200 requires a member to arbitrate a dispute with a customer when the customer demands arbitration; arbitration awards are generally final and binding.

Rule 2210 governs public communications: content standards, principal approval before use, and filing of certain materials with FINRA.

Continuing education consists of the annual Regulatory Element for registered persons and the firm-designed Firm Element training program.

SEA Rule 15c3-1 requires a minimum net capital amount; a member carrying customer accounts must maintain at least $250,000, and non-carrying firms are subject to lower thresholds.

Rule 17a-11 requires a member to notify the SEC and FINRA within 24 hours if net capital falls below 120% of its minimum requirement.

SEA Rule 15c3-3 requires a member to segregate customer securities and maintain a special reserve bank account for customer funds, computed weekly.

Form X-17A-5 (FOCUS Report) must be filed with FINRA on a monthly, quarterly, or annual schedule depending on the member's size and business.

SEA Rules 17a-3 and 17a-4 require creation and preservation of books and records for six years, with the first two years readily accessible.

Subordinated loans may count as net capital only if they satisfy SEA Rule 15c3-1(c) requirements, including a minimum term and a subordination agreement.

Haircuts under Rule 15c3-1(c)(2) reduce the value of securities positions when computing net capital.