The Financial Industry Regulatory Authority (FINRA) brought a complaint against brokerage firm Brookville Capital Partners, LLC (Brookville Capital) and its president Anthony Lodati (Lodati) concerning allegations that the respondents defrauded customers in connection with the sale of a private placement offering; made unsuitable recommendations to customers; and failed to establish, maintain or enforce a supervisory system reasonably designed to achieve compliance with the rules governing the sale of private placements
FINRA alleged that from January 2011 through October 2011, Brookville customers were defrauded by recommendations to invest in a private placement called Wilshire Capital Partners Group LLC (Wilshire). FINRA alleged that Lodati learned that John Mattera (Mattera) had effected transactions on behalf of Wilshire as Wilshire’s CEO and Managing Director and that Mattera had been sanctioned and fined by the Securities and Exchange Commission (SEC) for securities fraud in 2010 and convicted of a felony by the state of Florida in 2003. FINRA alleged in the complaint that both Lodati and Brookville also knew or should have known through adequate due diligence that the escrow company used by Wilshire was controlled by Jonnie Ray Arnold (Arnold). FINRA stated that Arnold was sanctioned and fined by the SEC in 2010 in the same action as Mattera.
Rather than disclosing Mattera’s role in Wilshire or his criminal and regulatory background, FINRA found that Lodati and Brookville continued soliciting customers to invest in Wilshire through which investors would have an interest in pre-initial public offering (IPO) shares of Fisker Automotive.
Our law firm has reported numerous times concerning brokerage firms’ failure to conduct due diligence and sales practices concerning Fisker Auto. See First Allied Securities Has Been Accused of Selling Advanced Equities Securities By Misleading Investors, Advanced Equities and First Allied Sales of Fisker Automotive Private Placements Under Scrutiny – Part I, Advanced Equities and First Allied Sales of Fisker Automotive Private Placements Under Scrutiny – Part II, , Advanced Equities Fined Over Allegations of Failure to Disclose Information Concerning Fisker Automotive Private Placements, Advanced Equities Fined Over Failure to Disclose Material Information Concerning Fisker Automotive Private Placements (Part II).
In this case, FINRA alleged that Brookville Capital sold 29 of its customers over $1 million worth of securities in Wilshire. FINRA found that in November 2011, the SEC sued Mattera, Arnold, and others in connection with a separate scheme through which they defrauded investors of $13 million. FINRA found that these individuals, including Mattera, were criminally prosecuted and convicted and sentenced to prison. FINRA alleged that Wilshire was related to the fraudulent scheme through Mattera, Arnold and his escrow company, and the SEC obtained a court order freezing all of Wilshire’s assets, including the interests owned by Brookville Capital’s customers. Consequently, FINRA found that Brookville Capital customers who invested in Wilshire cannot access their funds or their purported investment in Fisker stock.
FINRA found that by intentionally omitting known material information in connection with the sale of securities to Brookville Capital customers, Lodati and Brookville willfully violated the Securities Exchange Act of 1934 § 10(b), Rule 10b-5 thereunder, and FINRA Rules 2020 and 2010. Further, FINRA alleged that Lodati was responsible for conducting due diligence on the Wilshire investment before Brookville could begin soliciting its customers, that he certified that he had completed due diligence for the transaction with Wilshire, but that at that time Lodati and Brookville Capital’s counsel knew that Brookville Capital did not have several key documents necessary to complete due diligence.
In sum, FINRA alleged that Lodati and Brookville Capital disregarded numerous red flags relating to the ownership of the Fisker stock, the documents created for the transaction, and the individuals involved with Wilshire and other related entities. FINRA found that because the firm failed to conduct adequate due diligence it did not have a reasonable basis to believe the Wilshire investment was suitable for any customer or to authorize its brokers to recommend customers invest in Wilshire.
The attorneys at Gana LLP are experienced in representing investors in cases concerning private placements, including Fisker Automotive. Our consultations are free of charge and the firm is only compensated if you recover.