The Securities and Exchange Commission (SEC) barred broker Murat Dorkan (Dorkan) (Release No. 9878), a former Sterne Agee Financial Services, Inc. and Hornor, Townsend & Kent, Inc. registered representative. The SEC alleged that Dorkan participated in an offering fraud in connection with the sale of Empire Corporation (Empire) “Senior Subordinated Debenture Bonds. The SEC alleged that from 2006 to 2010, Dorkan and Wilfred T. Azar, III (Azar) – the President, Chairman and Chief Executive Officer of Empire, and a third individual – an unnamed registered representative – fraudulently raised more than $7 million through the unregistered sale of Empire bonds.
The SEC accused Dorkan of selling the Empire bonds to his customers, friends, family members and others, and personally raised more than $3.5 million from bond sales. According to the SEC, Dorkan induced investors to purchase the Empire bonds by making materially false and misleading statements and omissions. Dorkan’s alleged misstatements included Empire’s financial condition, its ability to generate the promised returns, and the safety and risk of the investment. Dorkan is also alleged to have misled investors by claiming that investor proceeds would be used for various corporate purposes.
The SEC found that the true use of most of the investor proceeds went to fund his own lifestyle, to finance his other unprofitable and failing businesses unrelated to Empire, to meet Empire’s day-to-day operating expenses, and to make interest and redemption payments to existing Empire bond investors. In addition, the SEC found that Azar paid Dorkan at least $143,000 in undisclosed compensation for selling Empire bonds.
The allegations made against Dorkan constitute private securities transaction – also referred to in the industry as “selling away.” In the industry the term selling away refers to when a financial advisor solicits investments in companies, promissory notes, or other securities that are not pre-approved by the broker’s affiliated firm. However, even though when these incidents occur the brokerage firm claims ignorance of their advisor’s activities the firm is obligated under the FINRA rules to properly monitor and supervise its employees in order to detect and prevent brokers from offering investments in this fashion. In order to properly supervise their brokers each firm is required to have procedures in order to monitor the activities of each advisor’s activities and interaction with the public. Selling away misconduct often occurs where brokerage firms either fail to put in place a reasonable supervisory system or fail to actually implement that system. Supervisory failures allow brokers to engage in unsupervised misconduct that can include all manner improper conduct including selling away.
In cases of selling away the investor is unaware that the advisor’s investments are improper. In many of these cases the investor will not learn that the broker’s activities were wrongful until after the investment scheme is publicized, the broker is fired or charged by law enforcement, or stops returning client calls altogether.
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 of selling away and brokerage firms failure to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover.