David Mickelson has been accused by the Financial Industry Regulatory Authority (FINRA) of improperly selling approximately $8.3 million worth of various private placements to at least 71 customers without informing his brokerage firm (a practice known as “selling away“).
From 2004 through May 2011, Mickelson was associated with NFP Securities, Inc. (NFP). Mickelson’s private placement sales during this time included investments in Micro Pipe Fund I, LLC (Micro Pipe Fund), The Nutmeg Fund/Michael Fund LLLP, The Nutmeg/Fortuna Fund, LP, the Nutmeg/Patriot Fund, LLLP, and Lone Wolf, Inc. FINRA alleged that Mickelson created Micro Pipe Capital Management, LLC, Mickelson Investment Management, LLC, Hannahlu Ventures, LP, and DFM Agency, LLC in order to manage the various private placement offerings.
In order to promote his private placements, Mickelson allegedly marketed Micro Pipe Fund and other investments using misleading websites and advertisements communicated to customers using email accounts not monitored by NFP. Mickelson’s websites included: mickelsoninvestmentmanagement.com/mickinvest.com; astuteasset.com; and mickelsonlife.com. These websites contained securities-related communications including detailed discussions of private investment in public equity (PIPE) funds.
FINRA’s complaint also alleged that Micro Pipe Fund provided investors with monthly balance sheets and investor account statements that contained over inflated position values. The balance sheets provided to investors showed investments in companies such as Spooz, Inc. and Yinlips Technology, Inc. FINRA alleges that Mickelson created fake positions in these stocks based upon hypothetical investments that the Micro Pipe Fund purported to investors as having been made. For example, the Mico Pipe Fund computed a holding of $182,256 in Spooz, Inc. stock in December 2007 based upon an initial $90,000 investment. However, both the initial investment and the gains never occurred.
Mickelson, also distributed a PowerPoint presentation and a brochure to investors entitled “Tricks to PIPE Investing” with misleading statements such as “Micro PIPE Fund I seeks double digit, short term capital appreciation”, “[t]o minimize illiquidity…”, and “MP achieves 70% return in first four months.” These statements were exaggerated, misleading, and unbalanced by appropriate risk disclosures. FINRA Rule 2210(d) requires communications with the public to not be misleading and to disclose material risks to investors.
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