This case of first impression interprets and applies the Securities and Exchange Commission's ("SEC") crowdfunding rules and FINRA's funding portal rules to a FINRA funding portal member and its associated person. Between July 2016 and November 2017, DreamFunded Marketplace, LLC ("DreamFunded Marketplace") was a FINRA funding portal member. Manuel Fernandez was DreamFunded Marketplace's founder, chief executive officer, chief financial officer, and chief compliance officer. On June 5, 2019, an Extended Hearing Panel found that DreamFunded Marketplace and Fernandez violated numerous SEC regulation crowdfunding rules and FINRA funding portal rules as they served as intermediaries for crowdfunded offerings facilitated through their online funding portal - DreamFunded.com.Specifically, the Hearing Panel found that DreamFunded Marketplace and Fernandez: (1) failed to respond fully and completely to FINRA's request for information and documents (cause one); (2) failed to deny an issuer's access to the funding portal when the issuer's offering presented the potential for fraud and raised investor protection concerns (cause two); (3) made false, exaggerated, unwarranted, promissory, and misleading statements about an investment in an issuer, the due diligence conducted on issuers, and certain real estate investments (cause three); (4) failed to conduct issuer background checks and securities enforcement regulatory histories (cause five); (5) failed to provide investors with a material change notice for an offering (cause six); (6) failed to provide investors with early closing notices for two offerings (cause seven); (7) failed to provide investors with investment cancellation notices (cause eight); (8) failed to provide investors with investment confirmation notices (cause nine); and (9) failed to implement policies and procedures reasonably designed to supervise the funding portal's activities and associated persons (cause ten). The Hearing Panel, however, found that FINRA's Department of Enforcement ("Enforcement") failed to prove that DreamFunded Marketplace and Fernandez did not have a reasonable basis for believing that certain issuers were not in compliance with the Securities Act of 1933 ("Securities Act") under cause four, and the Hearing Panel dismissed parts of Enforcement's allegations under causes two and six.For sanctions, the Hearing Panel expelled DreamFunded Marketplace from funding portal membership, and barred Fernandez from associating with any FINRA funding portal member in any capacity, for: (1) failing to respond fully and completely to FINRA's request for information and documents under cause one; and (2) making false, exaggerated, unwarranted, promissory, and misleading statements about Fernandez's investment in an issuer and the funding portal's due diligence on issuers under cause three. The Hearing Panel also assessed, but declined to impose, the following sanctions on DreamFunded Marketplace: (1) four 30-calendar day suspensions under cause two, cause five, causes six through nine as an aggregate sanction, and cause ten; (2) a letter of caution for the remaining liability under cause three; and (3) the submission and creation of a supervisory plan to address the funding portal's deficiencies under cause ten. For Fernandez, the Hearing Panel assessed, but declined to impose, the following sanctions: (1) a six-month suspension and $10,000 fine under cause two; (3) three 30-calendar day suspensions under cause five, causes six through nine as an aggregate sanction, and cause ten; (3) a letter of caution for the remaining liability under cause three; and (4) the submission and creation of a supervisory plan to address the funding portal's deficiencies under cause ten. After an independent review of the record, including all causes of action and all of the Hearing Panel's findings and sanctions,2 we modify the Hearing Panel's findings and sanctions.
DreamFunded Marketplace and Fernandez appealed the Hearing Panel's decision. Enforcement filed a cross-appeal. DreamFunded Marketplace's and Fernandez's appeal focuses on the Hearing Panel's findings under cause one and cause ten and parts of the Hearing Panel's findings under cause three. Enforcement's appeal focuses on the parts of cause two that the Hearing Panel dismissed, in addition to the Hearing Panel's dismissal of the entirety of cause four. The novelty and importance of the issues presented, however, call for the de novo review of this entire case.