FINRA, the self-regulatory organization overseeing US broker-dealers, has censured and fined Cowen and Company $80,000 for violating securities rules tied to a 2022 partial tender offer, according to a Letter of Acceptance, Waiver, and Consent (AWC) — FINRA's standard settlement vehicle, in which a firm consents to the regulator's sanctions — released by the regulator.

Cowen, formerly an independent broker-dealer, was merged into TD Securities (USA) LLC in December 2024 and subsequently withdrew its FINRA registration in February 2025. The consolidation followed TD Bank Group's 2023 acquisition of Cowen as the Canadian bank built out its US capital markets business.

The Violation

According to the AWC, Cowen violated Rule 14e-4 of the Securities Exchange Act of 1934 — the provision that prohibits tendering more shares than a firm's net long position — by over-tendering 100,000 shares during a modified Dutch auction-style partial tender offer for an unnamed company in 2022. Acting alongside an affiliate, the firm tendered 150,000 shares without properly calculating its net long position.

Rule 14e-4 is the SEC's anti-"short tendering" provision: it bars firms from offering more shares than they can actually deliver, which in an oversubscribed partial offer would shrink the allocations available to shareholders tendering stock they genuinely hold.

In a modified Dutch auction, shareholders tender at prices within a stated range and the buyer selects the lowest price that lets it purchase the number of shares it seeks — which is why an option's strike price, relative to where the auction clears, determines whether the underlying shares count toward a tendering firm's position.

Regulators found that Cowen failed to account for 1,000 short call options held in its proprietary account. Those options represented 100,000 underlying shares and carried an exercise price below the highest tender price offered.

Supervisory Lapses

FINRA also determined that Cowen's supervisory framework, including its written supervisory procedures, was inadequate between October 2022 and May 2024. The firm's procedures did not clearly address how to calculate short call options with exercise prices falling between the final tender price and the highest offer price in Dutch auction tender offers. Cowen has since updated its procedures to close that gap.

FINRA member firms are required to maintain supervisory systems reasonably designed to achieve compliance with securities rules, and the regulator routinely pairs underlying rule violations with findings that procedures failed to cover the specific conduct at issue.

Settlement Terms

Under the settlement, Cowen accepted the censure and fine without admitting or denying FINRA's findings. A censure is a formal public reprimand that becomes part of a firm's disciplinary record. Of the $80,000 penalty, $40,000 goes to FINRA and the remainder is allocated to NYSE Arca.

At the time of its merger, Cowen had 274 registered representatives and 12 branch offices. TD Securities now operates with roughly 1,600 registered representatives across 22 branches. With Cowen no longer a FINRA member, responsibility for maintaining the revised procedures and supervising the combined business now rests with TD Securities, which remains subject to FINRA oversight.

Source: LeapRate