The Financial Industry Regulatory Authority (FINRA) filed a complaint against broker Kenneth Brownlee (Brownlee) concerning allegations that between October 2009 and June 2010, Kenneth Brownlee sold four customers interests in limited liability corporations created by City Capital Corporation (CCC) that later turned out to be a fraudulent enterprise.
Brownlee first became associated with a FINRA firm, Allstate Financial Services, LLC, (Allstate) in May 2002 and was registered there until March 2013 when Allstate terminated his registration after allegations involving the sale of an unauthorized investment product and engaging in an undisclosed outside business activity. This type of activity is commonly referred to as “selling away.”
According to the complaint, Brownlee was introduced to CCC in 2009 when the company’s chief executive officer, Ephren Taylor (Taylor), gave a presentation about the company at Brownlee’s church. Thereafter, The Securities and Exchange Commission (SEC) sued CCC, Taylor, and others charging CCC with fraud for enticing investors to roll over retirement portfolios and invest those funds in “sweepstakes machines” through CCC. According to the SEC complaint, CCC offered investors interests in limited liability companies that purchased “sweepstakes machines” that would generate returns of as much as 300 percent or more. The sweepstakes machines themselves were described to investors as computers loaded with various games similar to those found in casinos. CCC promised financial professionals 10 percent commissions for investor referrals.
The SEC alleged that investor funds were pooled and used for a variety of purposes unrelated to the sweepstakes machines or legitimate investment activity including to pay Taylor’s personal expenses and to fund Taylor’s wife’s music career. On March 7, 2013, the SEC obtained a judgment finding that CCC was a fraudulent scheme and ordering that defendants pay $14 million. In ancillary litigation, on June 17, 2014, the Department of Justice arrested Taylor and another participant on a fraud indictment charge related to their roles with CCC.
FINRA alleged that Brownlee introduced his customers to CC and completed the requisite paperwork to transfer funds to CCC. FINRA found that Brownlee’s investment recommendations were not suitable did not have a reasonable basis to recommend CCC to the four customers because he failed to conduct reasonable due diligence on CCC prior to making his recommendation. All brokers and brokerage firms have an obligation to investigate the viability of a product prior to bringing the product to a client’s attention.
FINRA found that Brownlee’s customers lost all of the money they invested in CCC. In addition, FINRA alleged that CCC was not an approved investment offered through Allstate. Further, FINRA alleged that Brownlee did not provide Allstate with written notice disclosing his role in selling interests in CCC. FINRA alleged that Brownlee received over $12,000 for his role in steering clients to CCC.
Finally. FINRA alleged that when FINRA staff requested information and documents from Brownlee relating to any money he received from CCC, he falsely claimed that he had not received any money from CCC and that he had no involvement in any customers’ investment in CCC. FINRA stated that Brownlee also twice failed to appear for on-the-record testimony related to FINRA’s investigation.
The attorneys at Gana LLP are experienced in representing investors in cases of selling away, Ponzi schemes, and brokerage firm’s failure to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover.