The Reasonable Investigation Duty: Legal Basis and Triggers

What this video covers

• Why the duty to investigate attaches instantly the moment a representative recommends any security, private placement or not
• How the reasonable investigation duty rests on two legal grounds: the broker-dealer's special relationship to the customer, and the implied representation that investigation occurred
• What Regulation D actually exempts (registration) versus what it never exempts (the anti-fraud provisions), and why registration and fraud are separate legal questions
• Why a firm that fails to investigate violates federal anti-fraud provisions, FINRA's commercial honor standard, and forfeits the reasonable-care defense to liability for misleading offering documents
• Why sophisticated or accredited investor status is a customer-side wealth test that does not eliminate, reduce, or waive the duty to investigate the issuer and the security
• When a firm may rely on an issuer's registration statement and periodic reports (reporting company, no red flags, not an underwriter), and why this three-part shortcut rarely applies in private placements
• How reasonable-basis suitability (product-level) differs from customer-specific suitability, and why exam answer choices mixing the two are traps