Brokers Howard Allen (Allen), Joseph McGowan (McGowan), and Peter Pak (Pak) have settled charges brought by the Financial Industry Regulatory Authority (FINRA) concerning allegations that the brokers, while employed by J.P. Turner & Company, L.L.C. (JP Turner) and Portfolio Advisors Alliance, Inc. (PAA), participated in 12 private securities transactions without providing prior written notice to their firms in violation of NASD Conduct Rules 3040 and 2110 and FINRA Rule 2010.
The brokers were associated with the same firms at approximately the same times. The brokers were associated with JP Turner from 2002 until 2008. Thereafter, the brokers were associated with Allen Partners from May 2008 until June 2009. Finally, since 2009 the brokers have been associated with PAA. Pak has not been registered since 2011. Both Allen and McGowan are currently registered with PAA.
According to FINRA the three brokers owned and controlled two companies – Allen Partners Capital, LLC (APC) and Allen Partners, LLC (AP). Allen was a managing member of both companies. While at JP Turner and PAA, Allen conducted his branch office operations through AP. FINRA found that while the brokers were associated with JP Turner and PAA they raised money for both APC and AP.
FINRA alleges that between July 2005, and April 2008, the brokers issued ten promissory notes totaling $1.2 million to seven investors. The ten promissory notes bore interest at a rate of 7.5% per year for terms of at least one year. Some of the promissory notes also contained provisions that allowed the investor to participate in a private offering of securities as a principal or on behalf of its clients entitling the note holder to receive a portion of any warrants that the payor were to receive as additional equity or compensation from the private offering.
FINRA found that the brokers “sold away” from their brokerage firms by participating in the ten transactions that raised money for APC and AP. Selling away occurs when a broker solicits securities or promissory notes that were not approved by the brokerage firm. These private investments often appear to investors to be just another investment recommendation and investors are completely unaware that the activity is improper. In addition, many investors do not learn that the broker’s activities are wrongful until the promised return is not paid, the broker is sanctioned, or the broker stops returning client calls. In this case, FINRA found that prior to participating in the ten private securities transactions, the brokers failed to provide their member firms with written or oral notice of their proposed roles in or the selling compensation that they may receive from the transactions.
Brokerage firms usually deny liability for selling away claims by claiming that the firm had no knowledge of the transaction. However, ignorance does not exonerate a brokerage firm’s failure to supervise their employees. The attorneys at Gana LLP are experienced in investigating claims concerning outside business activities. Our consultations are free of charge and the firm is only compensated if you recover.