Regulation Best Interest Disclosures
This guide summarizes important information concerning the scope and terms of the services MDB Capital Group LLC (MDB) offers and details the material conflicts of interest that arise through our delivery of brokerage services to you. We encourage you to review this information carefully, along with any applicable account agreement(s) and disclosure documentation you receive from us.
As you review this information, we would like to remind you that we are registered with the Securities and Exchange Commission (SEC) as a broker-dealer providing investment banking and brokerage services. A brief summary containing general information about our firm and services is available on our Form CRS.
Our Business Model
MDB provides services related to an asset class that should only be an appropriate allocation within a properly diversified investment portfolio based on your personal situation and investment objectives. MDB deals with securities for a limited number of companies which may be affiliates of MDB, or in which MDB and its customers and financial professionals otherwise own substantial equity. This limited area of service creates substantial conflicts since the securities sold for the companies are sold for affiliates of MDB, and if you trade in the public shares of these companies, MDB or its financial professionals or customers may be buying or selling shares at the same time, or at any time, and may be holding substantial shares. While customers may use their accounts for general securities investing, MDB is not in the business of advising on general securities investing. (affiliates definition) (trading ahead)
MDB’s limited selection of investments, including the IPOs and private offerings we finance, may not be suitable for all retail investors. We may allocate these investment opportunities depending on customer type (e.g., institutional vs. retail investor), investment history with the firm, etc. Other firms could offer a wider range of choices, some of which might have lower costs.
MDB raises private and public offerings for affiliated companies. MDB financial professionals may be officers or directors of these companies in addition to being controlling shareholders at various times. Any customer who invests in a private or public offering sold by MDB will receive disclosure documents, a private placement memorandum or Prospectus, describing MDB’s relationship with the issuer company, which you should read carefully. Customers who trade in the stock of these companies after they go public should know that, even if the companies are no longer affiliates of MDB, MDB, its financial professionals and its customers may be affiliates of and/or would still own substantial equity in these companies.
In addition, MDB financial professionals who serve as officers or directors of affiliated or other public companies may occasionally possess material non-public information concerning such companies that the financial professionals are unable to share with clients. We restrict individual or firm-wide trading in a stock for which a financial professional possesses material inside information.
MDB’s compensation is not limited to cash commissions, but the value of funding the companies in which MDB and its financial professionals own substantial equity. When engaged in a private placement or public offering the cash and equity (stock, options or warrants) compensation related to the respective offering, and MDB’s ownership and other relationships with the issuer company, will be described in the disclosure documents (placement memorandum or Prospectus) you will receive as a prospective purchaser. While this compensation is paid by the issuer, it still impacts the price net equity per fully diluted share of the issuer in which the customer has invested, thus indirectly borne by the customer.
MDB’s most recent ownership in these public companies would be reported at sec.gov/edgar as of the date of that filing, if the ownership meets the requirements of SEC regulations for disclosure by a public company. Although an ownership amount may not require reporting, it is not an indication that MDB, its financial professionals, and/or customers do not own substantial equity.
Certain company specific conflicts are listed below.
- We beneficially own 1% or more of any class of common equity securities of the following companies: Pulse Biosciences, Inc. (PLSE); Cue Biopharma, Inc. (CUE); Provention Bio, Inc. (PRVB).
- Our financial professionals may have a financial interest in the debt or equity securities (e.g., option, right, warrant, future, long or short position) of the following companies for which we provided investment banking services: Clearsign Combustion Corp. (CLIR); Energous Corporation (WATT); Resonant Inc. (RESN); Second Sight Medical Products, Inc. (EYES); Ideal Power Inc. (IPWR); theMaven, Inc. (MVEN); Pulse Biosciences, Inc. (PLSE); Cue Biopharma, Inc. (CUE); and Provention Bio, Inc. (PRVB).
- We have one financial professional who is a director of Endra Life Sciences Inc. (NDRA)
Information on our firm and financial professionals can be reviewed by the public at FINRA’s website brokercheck.org. You may also obtain more information by contacting MDB at 310.526.5000 or at our website mdb.com.
MDB offers brokerage services that give you the ability to buy, sell, and hold equities and other exchange traded securities within your account. These services are non-discretionary, meaning that you may select investments, or we may recommend investments for your account, but the ultimate investment decision as to investment strategy and the purchase and sale of investments will be yours.
When we make a securities recommendation, investment strategy recommendation or recommendation as to account type, the recommendation is made in our capacity as a broker-dealer. In a brokerage capacity, we do not agree to enter into a fiduciary relationship with you.
It is also important for you to understand that when we make an investment recommendation to you, we are obligated to ensure the recommendation is in your best interest, by considering reasonably available alternatives, and based on your stated investment objective, investment experience, and other financial information you provide us. You may accept or reject any recommendation.
All investment recommendations and activities involve risk, including the risk that you may lose your entire principal. Further, some investments involve more risk than other investments. Higher-risk investments may have the potential for higher returns but also for greater losses. You should select the investment objective best aligned with your brokerage account goals and needs.
It is your responsibility to monitor the investments in your brokerage account, and we encourage you to do so regularly. We do not commit to provide on-going monitoring of your brokerage account. If you prefer on-going monitoring of your account or investments, you should speak with a financial advisor about whether an advisory services relationship is more appropriate for you.
Please also consider that, from time to time, we may provide you with additional information and resources to assist you with managing your brokerage account. This may include, but is not limited to, educational resources, sales and marketing materials, performance reports, and/or periodic brokerage account reviews. When we offer these services and information, we do so as a courtesy to you. These activities are not designed to monitor specific investment holdings in your brokerage account, they do not contain specific investment recommendations about investment holdings, and you should not consider them a recommendation to trade or hold any particular securities in your brokerage account. Upon your request, we will review such information and reports with you and may provide you with investment recommendations, but we are not under a specific obligation to do so.
Cash Brokerage and Margin Brokerage Accounts
MDB provides brokerage services through either a cash brokerage account or margin brokerage account, based on your eligibility and selection. In a cash brokerage account, you must pay for your purchases in full at the time of purchase. In a margin brokerage account, you are engaging in a transaction in which securities are purchased partially through a margin loan extended to you by our clearing firm, for which the securities act as collateral. If the securities in your account decline in value, so does the value of the collateral supporting your loan, and, as a result, our clearing firm can sell securities or other assets in your account held with MDB or issue a margin call, in order to maintain the required equity in the account. You will incur interest costs as a result of your margin balance. While many securities are eligible to be used as collateral for a margin loan, some assets are not eligible to be used for margin collateral. It is important that you fully understand the risks involved in trading securities on margin.
Given that a margin-enabled brokerage account has specific eligibility requirements, unique costs, and governing regulatory requirements, our default brokerage option is a cash brokerage account. You must execute a separate margin agreement before engaging in margin brokerage activity. This agreement contains important information you should understand and consider before establishing a margin brokerage relationship. If contemplating use of margin, please consult our website mdb.com/margin for additional details.
MDB has established compensation practices including fees and other charges for the services provided and products sold. MDB financial professionals are compensated in connection with the firm's investment banking revenues (including revenues from sale of private placements or public offerings) and/or purchase or sale of securities, i.e., through participation in MDB’s equity compensation (which can be stock, options or warrants) and cash compensation.
MDB also receives upfront commissions or sales charges when it executes transactions in public securities for you. A commission on these transactions is typically paid by the customer at the time of the sale and can reduce the amount available to invest or can be charged directly against an investment. Commissions are often based on the dollar price of the asset as well as the source and direction of the particular asset. MDB receives the commission and shares it with your financial professional. The more transactions in a customer account, the more fees MDB charges. Cash commissions on transactions in public securities in the secondary market are not the firm’s main source of revenue.
MDB generally does not make customer-specific recommendations nor do we sell proprietary products or participate in sales contests, the compensation that we and our financial professionals receive from you varies based upon the product you purchase, which creates a financial incentive to recommend investment products and services that generate greater compensation to us.
Our Commission Schedule can be reviewed on our website at mdb.com/fees.
Account and Service Fees
If you hold an account at MDB, you may be charged miscellaneous fees directly to your account through our clearing firm for clearing services, transaction processing, account transfers, and account maintenance, among others. These fees are not shared with the firm’s financial professionals.
In addition, MDB may charge fees that consider the cost to the firm of effecting the transaction or strategy on behalf of the customer (e.g., the effort or cost of buying or selling an illiquid security).
Our clearing firm’s Account and Service Fees Schedule can be reviewed at interactivebrokers.com/OtherFees.
Recommending a client rollover an existing workplace retirement plan, such as a 401K, into an Individual Retirement Account (IRA) creates an inherent conflict of interest as we would have a financial incentive to recommend that a customer invests those assets with MDB, because we will be paid on those assets, for example, through commissions and/or fees.
Before moving assets you should consider a variety of factors including, but not limited to:
- Fees and expenses
- Level of services available
- Available investment options
- Ability to take penalty-free withdrawals
- Application of required minimum distributions
- Protections from creditors and legal judgements
For more information about rollovers, see our clearing firm’s website interactivebrokers.com/IRAAccountInformation.
The conflicts of interest described above are provided to keep you better informed, to detail the inherent conflicts in our industry and with our firm, and to detail our method for mitigating these conflicts. If you have any questions, please speak to your MDB financial professional.
Customer Relationship Summary (Form CRS) www.mdb.com/CRS
Other MDB Disclosures mdb.com/disclosures