The Financial Industry Regulatory Authority (FINRA) recently filed a complaint against ARI Financial Services, Inc. (ARI) and William Candler (Candler), the firm’s President and former Chief Compliance Officer (CCO) alleging that that he facilitated at least ten private placement offerings from September 1, 2009, to December 31, 2012. The complaint found that the respondents failed to implement reasonable supervisory procedures in connection with the sales of the private placements.
ARI has been a FINRA member firm since 2005 and derives most of its revenue as a wholesaler of private placements that it marketed to retail broker-dealers who then sold those interests to retail investors. ARI’s main office was located in Kansas and during certain times had registered up to five branch offices and over 30 registered representatives located in six different states. ARI is currently owned by Candler and two other individuals. Candler is ARI’s majority owner.
Candler entered the securities industry in 1996. From March 2011, until November 2012, Candler was associated with Connor Capital Investments, LLC. Since April 2014, in addition to ARI, Candler is associated with JCC Advisors, LLC.
FINRA alleged that ARI had at most two employees during the relevant time period and ARI registered full-time employees of the private placement issuers as independent contractors for the firm to conduct its wholesaling and marketing activities. Additionally, FINRA alleged that ARI registered the issuers’ headquarters supervisory branch offices and designated members of the issuers’ staff as persons with compliance responsibilities for these offices. FINRA alleged that ARI relied on these designated persons to carry out supervisory responsibilities for the firm. FINRA alleged that ARI effectively registered the private placement issuers’ employees to promote and sell their employers’ securities and were also designated by ARI to supervise wholesaling activities conducted at their offices.
FINRA found that the firm failed to establish and maintain a supervisory system reasonably designed to ensure that delegated supervisory responsibilities were properly exercised by private placement issuers’ employees. While Candler was the registered principal responsible for establishing and enforcing the supervisory policies as a result of deficiencies, ARI failed to identify and prevent the dissemination of misleading and imbalanced advertising and sales materials by the issuer-reps and failed to ensure that the offering materials prepared and distributed by the issuerr-eps contained sufficient and accurate disclosures. FINRA also found that the firm failed to prevent the general solicitation of unregistered securities offered under the Regulation D.
Additionally, FINRA found that Candler failed to conduct reasonable due diligence regarding the Bridgeport Oaks Fund private placement. The offering was later discovered to be a Ponzi scheme. In 2011, the Bridgeport Oaks Fund owners were charged by the U.S. Attorney and subsequently pled guilty to federal mail and wire fraud charges in connection with the Bridgeport Oaks Fund Ponzi scheme. The two defendants were ordered to serve prison sentences and to pay restitution of over $18 million dollars to investors, including ARI customers.
FINRA found that at least seven firm customers purchased interests in the offering from an issuer-rep and lost their collective investment principal of approximately $560,000.
Investors who have suffered losses may be able recover their losses through securities arbitration. The attorneys at Gana LLP are experienced in representing investors in cases where brokerage firms fail to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover.