On December 11, 2013, the Financial Industry Regulatory Authority (FINRA) sanctioned broker Michael T. Ryan. Mr. Ryan was registered with FINRA brokerage firms from 1992 until November 1, 2013, including an eight-year stint with Securities America, Inc. (Securities America) and two years with Newport Coast Securities.
The basis for the underlying action brought against Mr. Ryan by FINRA, involved Ryan’s failure to accurately notify Securities America of his outside business activities. FINRA alleged that during a period spanning early 2009 through mid 2011, Ryan began working with an individual known as ZE, while Ryan was registered with Securities America. FINRA has alleged that Ryan began receiving compensation from and was an officer and board member of entities controlled by ZE, namely Kensington Leasing, Ltd, (Kensington) and a private entity known as WM were in direct violation of NASD Rule 3030 and FINRA Rule 3270. Throughout this time, FINRA alleged that Ryan did not submit proper notifications nor did he update the requisite information, in violation of NASD Rule 3030 and FINRA Rules 3270 and 2010.
Ryan also allegedly recommended that Securities America customers purchase restricted stock of two companies, Lenco Mobile, Inc. and Casablanca Mining Ltd. from ZE controlled entities. Ryan never notified Securities America of these private transactions in violation of NASD Rule 3040, which prohibits registered representatives from participating “in any manner in a private securities transaction,” unless the registered representative first notifies his or her member firm in writing.
The accusations made against Ryan are consistent with a “selling away” securities violation. Selling away occurs when a securities broker solicits securities that are not approved by the broker’s affiliated firm. Selling away is prohibited under FINRA Rule 3040, as well as other securities laws. Common securities products solicited in selling away schemes are private placements and promissory notes. Because selling away securities activity is not properly supervised investor fraud commonly occurs.
In the typical selling away scenario the investor is not aware that the broker is acting outside of the regular securities channels. The investor may be provided with false account statements or confirmations that contain values that the broker can manipulate and control. In other cases, the broker will have the investor open a self-directed account that helps the broker cloak the illegitimacy of the investment by having a third-party prepare statements and distribute income payments. However, these account statements are also misleading to investors because the broker has complete discretion to stop or alter payments and values.
FINRA requires that a registered representative notify his or her member firm of all participation in outside business activities including any activity outside the scope of the relationship with his or her member firm. FINRA alleged that Ryan’s outside business activity notices were inaccurate causing Ryan to fail to observe high standards of commercial honor and just and equitable principles of trade. Ryan consented to (1) a suspension from association with any member firm for a period of two years, (2) a fine of $40,000, and (3) $55,000 in restitution.
The attorneys at Gana LLP are experienced in investigating claims of financial fraud. 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.
By: Daniel Gwertzman