Broker David Diehl Sanctioned by FINRA Over the Unauthorized Sale of Promissory Notes

shutterstock_133831631Our law office is investigating potential customer complaints against David Diehl in the wake of the findings and sanctions by the Financial Industry Regulatory Authority (FINRA) concerning allegations that Diehl engaged in private securities transactions, often referred to as “selling away”, and an outside business activity without disclosing these activities to his firm, First Liberties Financial. According to FINRA, Diehl was able to raise approximately $480,000 from seven investors for a business which owned and operated three hamburger restaurants in the St. Louis, Missouri area. FINRA found that most of the investors were his brokerage firm client. By virtue of this conduct, FINRA determined that Diehl violated NASD Rules 3030 and 3040 concerning outside business activities.

Diehl has been registered with seven firms since 2004. From July 2010, through March 2012, Diehl was registered with First Liberties Financial (First Liberties). Thereafter, Diehl joined Sunbelt Securities Inc. but left that firm on shortly in April 2012. Diehl was also registered with investment advisors and established an RIA firm, Diehl Wealth Management Group, LLC, in October 2010, and terminated registration in August 2011. Diehl has had three regulatory findings against him including AWC (2012031952301) issued in December 2012 where Diehl was suspended in all capacities for four months and fined $7,500 for indirectly borrowing money from a customer without his firm’s approval and for failing to timely amend his Form U4 to disclose a tax lien totaling $292,965. A broker’s inability to manage his own finances is a relevant disclosure for investors and brokerage firm’s to apply heightened scrutiny the broker’s actions.

Here, FINRA found that Diehl was approached by a client who was a well-known sports figure who wanted to open local burger restaurants under the client’s name. FINRA found that during the latter half of 2010, Diehl participated in establishing the business, and the first of three restaurants opened in April 2011. The restaurants were managed by another individual brought into the business by Diehl. According to FINRA, the restaurant founders set up a corporate entity to own and operate the restaurants and two of Diehl’s close relatives were designated as corporate secretary and director. The address provided for the corporation was Diehl’s home address and the registration of a fictitious name for the restaurants identified Diehl’s office location as the address for the corporation.

According to FINRA, Diehl arranged for a client to invest money in the business and to allow the restaurants to use his name and likeness. In return for his investment, FINRA alleged that the client received a promissory note paying 10% per year. Thereafter, FINRA’s investigation uncovered that Diehl successfully solicited investments from at least six other investors. FINRA found that the six additional investors also received promissory notes paying 8-10% per year for up to 10 years. In total, Diehl raised a total of $480,000 from these seven investors. According to FINRA, the business stopped paying interest on the notes during 2013.

FINRA concluded that Diehl directly solicited at least eight investors, seven successfully, and sold promissory notes totaling $480,000 while registered with First Liberties, but did not provide written disclosure of these sales to the firm in violation of NASD Rule 3040.

Investors who have suffered losses through Diehl’s promissory note scheme may be able recover their losses through arbitration. The attorneys at Gana LLP are experienced in representing investors in cases of selling away where brokerage firms have failed to supervise their representatives. In this case, there appears to be many “red flags” that should have alerted Diehl’s member firm of his outside business activities. Our consultations are free of charge and the firm is only compensated if you recover.