private securities transactions

FINRA Bars Former Ameriprise Broker Ted Cadwallader Concerning Private Securities

March 24, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and barred broker Ted Cadwallader (Cadwallader) concerning allegations that Cadwallader engage in outside business activities including the sales of private securities. When outside business activities also include the recommendation of investments the activity is referred to in the industry as “selling away.”

FINRA Rule 8210 authorizes FINRA to require persons associated with a FINRA member to provide information with respect to any matter involved in the investigation. In August 2014, FINRA alleged that it pursued an investigation into allegations that Cadwallader engaged in undisclosed outside business activities. On November 21, 2014, FINRA requested that Cadwallader appear and provide testimony. FINRA stated that Cadwallader told the regulator that he would not provide information or cooperate in the investigation. Consequently, he was barred from the industry

According to Cadwallader’s brokercheck he has disclosed outside business activities including ownership of The Faith Based Coach. Cadwallader is also on the board of directors of Pacer BioScience and a board member of EarthEnergy Technologies LLC. It is unclear at this time what organization or product Cadwallader was involved with or selling that FINRA was investigating.

LPL Financial Broker Jon Cox Under Investigation For Outside Business Activities

December 15, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently filed a complaint against LPL Financial LLC (LPL) broker Jon Cox (Cox) alleging that Cox may have engaged in unauthorized outside business activities, private securities transactions (a/k/a “selling away”), and/or unauthorized customer loans. According to Cox’s BrokerCheck, Cox was terminated in January 2014 by LPL on allegations of violations of the firm policy regarding outside business activities. Cox’s disclosures also reveal that he works for a DBA Investment and Retirement Services Group in Knoxville, TN. In addition he is a sales agent for Proton Power, Inc.

While details concerning Cox’s activities are still pending, the allegations against Cox are consistent with a “selling away” securities violation. Selling away occurs when a financial advisor solicits investments in companies or promissory notes that were not approved by the broker’s affiliated firm. Under the FINRA rules, a brokerage firm owes a duty to properly monitor and supervise its employees. In order to properly supervise their brokers each firm is required to establish and maintain a system to supervise the activities of each registered representative to achieve compliance with the securities laws. Selling away often occurs in environments where the brokerage firms either fails to put in place a reasonable supervisory system or fails to actually implement that system and meet supervisory requirements.

In selling away cases, investors are unaware that the advisor’s investment advice is not authorized and potentially illegal because the securities sold are often not registered with the SEC. Typically investors will not learn that the broker’s activities were wrongful until after the investment scheme is publicized or the broker simply shuts down shop and stops returning client calls.

FINRA Files Complaint Against Toni Chen Over Failure to Respond to Inquiries Relating to a Pyramid Scheme

October 27, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) brought a complaint against broker Toni Chen (Chen) concerning allegations that during the course of FINRA’s investigation into whether Chen was involved in a pyramid scheme that may also constitute “selling away” activities. Chen failed to respond to FINRA’s requests.

On October 18, 2013, the Securities and Exchange Commission (SEC) filed a Form U6 with FINRA regarding Chen’s activities disclosing the United States District Court for the Eastern District of New York had granted the SEC’s request for a temporary restraining order for an asset freeze and other emergency relief against Chen and other defendants. The SEC restraining order is in connection with an ongoing worldwide investment pyramid scheme targeting members of the Asian-American Community. Thereafter, FINRA commenced its own investigation into whether Chen while registered with a FINRA firm or had engaged in any violations of the securities laws. Until April 2012, Chen was registered with World Group Securities, Inc. Thereafter, and until August 2012, Chen was associated with Transamerica Financial Advisors, Inc. (Transamerica).

FINRA alleged that it made numerous requests seeking information and testimony from Chen. In spite of FINRA’s numerous requests, Chen failed to provide testimony and certain information requested by staff. Due to Chen’s failure to provide documents, FINRA brought the instant complaint.

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

July 9, 2014 | by Staff Attorney

Our 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.

Broker Jeffrey Schrader Barred Over Selling Away Allegations

May 27, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Jeffrey Schrader (Schrader) concerning allegations that the broker engaged in private securities transactions and failed to cooperate with FINRA’s investigation.

Schrader entered the industry in June 1998. From November 2005, until March 2009, Schrader was associated with Merrill Lynch, Pierce, Fenner & Smith Inc. In March 2009, Schrader became associated with Western International Securities, Inc. (Western). Schrader conducts securities transactions on through his own business, Schrader Wealth Management.

FINRA found that between 2009 and 2010 Schrader, while associated with Western, engaged in over $145,000 worth of private securities transactions with three investors without providing written notice or receiving approval from Western. FINRA alleged that two of the nine investors were customers of Western at the time that their investment was made away from the firm.

FSC Securities Broker Timothy Moran Barred From Industry Over Involvement in Hampton Capital Management

May 23, 2014 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred FSC Securities Corporation (FSC Securities) broker Timothy Moran (Moran) concerning allegations that the broker: (1) engaged in private securities transactions without providing his employer with prior written notice; (2) failed to respond to FINRA requests for information; (3) provided false information to FINRA; and (4) failed to disclose a tax lien on a Form U4. Moran was ordered to disgorge $200,000, in ill-gotten gains in addition to the bar.

Moran was first became employed in the securities industry in February 1993. From June 2008, through April 2010, Moran was associated with Cambridge Investment Research, Inc. Thereafter, from May 2010, until December 2011, Moran was registered through his association with FSC Securities. On December 9, 2011, FSC Securities filed a Uniform Termination Notice (Form U5) terminating Moran’s registration. FSC filed an amended Form U5 filing in which the firm disclosed that it had terminated Moran’s employment while he was under internal review for fraud or wrongful taking of property, or violating investment-related statutes, regulations, rules or industry standards of conduct. FSC Securities also reported that Moran had referred clients to an unapproved investment fund.

FINRA alleged that Moran engaged in private securities transactions without providing FSC Securities with written notice in violation of NASD Conduct Rule 3040 and FINRA Conduct Rule 2010. During 2010, FINRA found that Moran subleased office space to Thomas Hampton. Hampton allegedly used the space to operate a private hedge fund, Hampton Capital Management (HCM). Moran was also found to have loaned Hampton money to help start HCM. HCM purportedly bought and sold exchange traded funds based on a proprietary trading strategy implemented by a computer program.