FINRA Sanctions Broker Over Unsuitable Concentrations in Private Placement Securities

FINRA has barred broker Daniel P. Deighan (Deighan) for seven months and fined him $27,500 over allegations that he recommended private placements to customers that were not suitable given the customers’ net worth, annual income, and the concentration of the private placements in their accounts.

Private placements are securities that do not trade on stock exchanges and are exempt from the regular filing requirements.  Private placements are issued under Regulation D under the Securities Act of 1933.  Regulation D contains three rules (Rules 504, 505, and 506) that provide the rules required to be followed in order to qualify for the exemptions from the more rigorous Securities and Exchange Commission (SEC) registration requirements.

The three rules primarily govern the size of the offering and the number of participants that can invest in the private placement.  However, under all three rules, with certain limited exceptions, investors must meet the “accredited investor” standard under Rule 501. Rule 501 defines “accredited investor” as any person who has a net worth in excess of $1,000,000, (excluding residence) or annual income in excess of $200,000 (or $300,000 jointly with a spouse) in the two most recent years.  While the size of the private placement market is unknown, according to 2008 estimates, companies issued approximately $609 billion of securities through Regulation D offerings.

In January 2007, Deighan became associated with Boogie Investment Group, Inc. (Boogie Investment) and remained with the firm under September 2011.  Thereafter, Deighan remained an investment advisor with Boogie Investment until April 2013.  Deighan’s CRD lists Deighan Financial Advisors as another investment related company that Deighan has been employed by.

FINRA alleged that Deighan recommended that one couple invest $1,097,700 in sixteen private placements.  In order to accomplish the transactions, FINRA alleged that Deighan overstated the couple’s net worth and annual income on their new account documents. The recommendation allegedly caused the couple to invest approximately 61% of their liquid net worth in illiquid private placements.  FINRA held that the concentration of private placements in their accounts compounded the risk of the already high risk investments.  Due to the large concentration, Deighan had no reasonable basis for recommending that the couple make the private placement investments.

FINRA alleged that Deighan made unsuitable recommendations of private placements in three customer accounts and that Deighan’s conduct violated FINRA Rules 2310 (suitability), 2110 (fiduciary duty), and 2010 (fiduciary duty).

Deighan has had at least eight customer disputes filed against him.  Most of the complaints filed against Deighan involve real estate, oil & gas, and equipment leasing private placements.  Some of these private placements include the Thompson National REIT, Rogers Realty, Healthcare Trust of America, Wells REIT II, Strategic Storage Trust, and American Realty REIT.

The attorneys at Gana LLP are experienced in investigating claims concerning private placement securities.  Our attorneys can help you detect and uncover suspicious activity in your accounts.  Our consultations are free of charge and the firm is only compensated if you recover.