Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial Broker Joshua Nicholas (Nicholas), previously associated with Merrill Lynch, Pierce, Fenner & Smith Incorporated, has at least 5 disclosable events. These events include one customer complaint, 4 regulatory events, alleging that Nicholas recommended unsuitable investments in different investment products including debt securities among other allegations and complaints.
FINRA BrokerCheck shows a final customer complaint on April 24, 2023.
The Securities and Exchange Commission (‘Commission’) deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Section 203(f) of the Investment Advisers Act of 1940 (‘Advisers Act’) against Joshua David Nicholas (‘Nicholas’ or ‘Respondent’). The Commission finds that on April 19, 2023, a final judgment was entered by consent against Nicholas, permanently enjoining him from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (‘Securities Act’), and Section 10(b) of the Securities Exchange Act of 1934 (‘Exchange Act’) and Rule 10b-5 thereunder, in the civil action entitled Securities and Exchange Commission v. Empires Consulting Corp., et al., 1:22-cv-21995-CMA, in the United States District Court for the Southern District of Florida. The Commission’s complaint alleged that Nicholas and others fraudulently raised at least $40 million of investor funds in EmpiresX investments by falsely claiming that EmpiresX could earn an expected investment return through a proprietary trading ‘bot’ or by manual trading performed by Nicholas. In reality, the bot was fake, Nicholas and others traded only a fraction of the funds they took from investors, and that limited trading failed to earn the purported return. Nicholas and others further lied to investors to provide assurances of the safety of their investment, including by falsely telling investors that EmpiresX had filed SEC registration paperwork. Instead, Nicholas and others misappropriated that investor money for personal uses such as cars, real estate, and travel. The complaint also alleged that Nicholas and others sold unregistered securities. On September 8, 2022, Nicholas pled guilty to one count of conspiracy to commit securities fraud, in violation of 18 U.S.C. \\u00a7 371, 15 U.S.C. \\u00a7\\u00a7 78j(b) and 78ff, and 17 C.F.R. \\u00a7 240.10b-5, before the United States District Court for the Southern District of Florida, in United States v. Joshua David Nicholas, 1:22-cr-20296-JEM. In connection with that plea, Respondent admitted that he conspired with others to commit securities fraud by offering EmpiresX investments through devices, schemes, and artifices to defraud, and materially false statements and omissions. Specifically, Respondent admitted that the purported EmpiresX bot was not real, and that EmpiresX was instead a Ponzi scheme that paid earlier investors with money obtained from later investors. Respondent further admitted that in marketing EmpiresX investments, he misrepresented himself as another individual in order to conceal from investors and potential investors his prior disciplinary history.
FINRA BrokerCheck shows a final customer complaint on January 24, 2022.
Without admitting or denying the findings, Nicholas consented to the sanction and to the entry of findings that he converted customer funds. The findings stated that Nicholas engaged in futures contracts through an outside business activity (OBA). Two of Nicholas\\u2019s OBA customers lost more than $1 million as a result of his futures trading. In a purported effort to recoup some of their losses, Nicholas convinced the customers to invest $300,000 in a promissory note with his OBA so that entity could invest the additional funds in securities on their behalf. However, Nicholas transferred $280,000 from his company\\u2019s bank account to his personal bank account and spent approximately $58,000 of these funds on personal expenses. The findings also stated that Nicholas provided the customers with a fictitious brokerage statement containing material misrepresentations. After executing the promissory note, Nicholas\\u2019s customers repeatedly asked him to provide a copy of the company\\u2019s account statement to show them whether and how the proceeds of the note had been invested. In response to these requests, Nicholas prepared and emailed a copy of a brokerage statement purporting to show that his company had opened a brokerage account at a FINRA member firm, and that the account owned a number of securities to secure the note. The brokerage statement stated, among other items, that the account was in the name of Nicholas\\u2019s company, that the account held shares of certain equity securities, and that the account had earned approximately $72,000 in dividend income that month. In fact, Nicholas had fabricated the document. Neither Nicholas\\u2019s company nor he had an account at the firm, and neither his company nor he owned any assets custodied at the firm. The claims in the fabricated statement were therefore false. The findings also included that Nicholas engaged in an undisclosed business activity. Nicholas failed to provide written notice to his member firm that he was engaged in an OBA involving the corporate entity he formed and through which he traded futures contracts. Nicholas did not receive approval from the firm to engage in his OBA. Moreover, Nicholas falsely attested in a firm annual compliance certification that he did not engage in any OBAs. FINRA found that Nicholas engaged in an undisclosed private securities transaction. The promissory note that Nicholas solicited his OBA customers to invest $300,000 in was a security and Nicholas participated in this private securities transaction away from the firm. Nicholas failed to either provide prior written notice to the firm or receive prior written permission from the firm prior to engaging in the transaction.
FINRA BrokerCheck shows a final customer complaint on December 08, 2020.
The Business Conduct Committee of the NFA issued a Complaint against JDN Capital, LLC (JDN Capital) and Joshua David Nicholas (Nicholas). The NFA’s complaint alleges that, on September 11, 2020, NFA’s Executive Committee issued a Member Responsibility Action (MRA) against JDN Capital, LLC, and Associate Responsibility Action (ARA) against Joshua David Nicholas. The action resulted from JDN Capital and Nicholas having failed to cooperate with NFA by not producing documents and information that NFA has requested during its investigation of them. The investigation involved a $300,000 loan that JDN Capital and Nicholas solicited, using misleading information, around May 2020 from their former managed account customers to purchase securities in JDN Capital’s name, in exchange for a promissory note that guaranteed 17% annual interest. However, around the time of the loan, Nicholas deposited $225,000 into a personal trading account at a NFA Member futures commission merchant (‘FCM A’) and is using those funds to conduct futures and other trading. Therefore, NFA requested JDN Capital and Nicholas produce bank records and other information so NFA could determine, among other things, what JDN Capital and Nicholas did with the loan proceeds, including whether Nicholas misappropriated the money to fund his personal trading account, contrary to the terms of the promissory note. NFA was also unable to determine whether JDN Capital and Nicholas entered into other loans and, if so, the loan amounts and what JDN Capital and Nicholas did with the proceeds. On November 9, 2020, approximately two months after the issuance of the MRA/ARA, Nicholas offered to repay the loan to Mrs. Doe’s Family Trust using money from his personal trading account at FCM A, in exchange for having the restrictions imposed under the MRA/ARA terminated. Accordingly, on November 16, 2020, NFA issued a ‘Notice and Order Terminating Member Responsibility Action and Associate Responsibility Action under NFA Compliance Rule 3-15’ (Notice and Order) because, among other reasons, Nicholas had repaid the $300,000 loan to the Does and NFA had obtained information that it sought during the investigation, though not from JDN Capital and Nicholas. The Complaint charges JDN Capital and Nicholas for failing to cooperate in NFA’s investigation by refusing to produce their bank records and other documents and information that NFA had requested from them in order to determine, among other things, what JDN Capital and Nicholas did with the proceeds of the loan from Mrs. Doe’s Family Trust. Although Nicholas eventually provided NFA with a copy of the promissory note, he waited until after the MRA/ARA was issued to do so. Further, the copy of the promissory note that Nicholas submitted to NFA was heavily redacted to obscure its material terms. Nicholas also failed to cooperate with the terms of the MRA/ARA by violating the MRA/ARA’s trading restriction. The MRA/ARA limited JDN Capital and Nicholas’s trading to liquidating existing positions only. However, NFA learned from FCM A that Nicholas had engaged in a significant amount of trading in his personal account on September 14, 2020, after the MRA/ARA was issued. Nicholas also willfully provided false and misleading information to NFA regarding, for example, the trading and funding of his personal account at FCM A and his employment status with the FINRA member firm. The Complaint also charges JDN Capital and Nicholas with failing to observe high standards of commercial honor and just and equitable principles of trade.
FINRA BrokerCheck shows a final customer complaint on September 11, 2020.
National Futures Association (NFA) hereby gives notice to JDN Capital, LLC, a registered commodity trading advisor (CTA) Member of NFA, and Joshua David Nicholas, the sole associated person (AP) and the principal of JDN Capital and an NFA Associate that, pursuant to NFA Compliance Rule 3-15, the President of NFA, with the concurrence of NFA’s Executive Committee, has taken a Member Responsibility Action (MRA) against JDN Capital and an Associate Responsibility Action (ARA) against Nicholas. \<char_lb_r>\, JDN Capital and Nicholas have failed to cooperate with NFA by not producing documents and information that NFA has requested during its investigation of them. The investigation involves a $300,000 loan that JDN Capital and Nicholas solicited, using misleading information, around May 2020 from their former managed account customers to purchase securities in JDN Capital’s name, in exchange for a promissory note that guaranteed 17% annual interest. However, around the time of the loan, Nicholas deposited $225,000 into a personal trading account at a NFA Member FCM and is using those funds to conduct futures and other trading. Therefore, NFA requested JDN Capital and Nicholas produce bank records and other information so NFA could determine, among other things, what JDN Capital and Nicholas did with the loan proceeds, including whether Nicholas misappropriated the money to fund his personal trading account, contrary to the terms of the promissory note. The NFA also alleges that Nicholas provided false and misleading information to NFA during the investigation. NFA is also unable to determine whether JDN Capital and Nicholas entered into other loans and, if so, the loan amounts and what JDN Capital and Nicholas did with the proceeds.
FINRA BrokerCheck shows a settled customer complaint on August 10, 2020.
The Trustees allege unsuitable investment recommendations, selling away and omission of material facts in February 2020.
Brokers are required to adhere to the SEC’s Regulation Best Interest (Reg BI) standard of care under the Securities Exchange Act of 1934 which establishes a ‘best interest’ standard for broker-dealers and associated persons. This Reg BI standard of care applies to registered representatives making recommendations to customers in the purchase, sale, or exchange of securities or the implementation of investment strategies involving securities and non-securities. The rule also applies to the handling of opening accounts such as account transfers and types of accounts being recommended to be opened. This standard applies when a registered representative is providing investment advice through making recommendations customers and covers securities transaction, investment strategies, and recommendations concerning advice on opening of an account or accounts.
The care obligation also requires the broker to address the client’s specific needs through obtaining specific investment profile information on the client. The associated person typically will ask the customer for information such as the investor’s risk tolerance or ability to withstand account value declines or increases; experience with investments available; investment objectives and goals; investment time horizon; liquidity needs; assets such as investment accounts held at other financial institutions; tax information; their age and retirement plans; and other information that a customer may want to provide to the advisor to help them to properly address the services needed. The Reg BI rule applies a fiduciary principles and requires an associated person to act in the retail investor’s “best interests” while barring the broker from placing their own financial interests and compensation incentives ahead of the investor’s best interest. There are several different aspects of the rule that brokers must comply with. One of which is the care obligations which require brokers to form a reasonable belief that their investment advice and recommendations are in the retail investor’s best interest. The care obligations include three components. First, the advisor must have an understanding of the potential risks, rewards, and costs associated with a product, investment strategy, account type, or series of transactions.
Another aspect of the care obligation is focusing on the client’s specific needs which brokers must reasonably understand through obtaining information for the client’s investment profile. In completing a customer’s investment profile the advisor should include information such as the investor’s investment time horizon; liquidity needs; risk tolerance; experience with various investment vehicles; investment objectives and financial goals; assets and debts including outside investment accounts; marital status; tax information; age; and other relevant information that may be individual to the investor that the advisor would need to know to properly render advice or provide services. Using the foregoing information, the associated person then must consider reasonably available investment option to accomplish the investor’s goals as well as alternative investment options that may be cheaper or other important qualities. Finally, the advisor must conclude that there is a reasonable basis to believe that the recommendation being provided is in the investor’s best interest. Finally, an advisor must also analyze the specific account features offered and determine whether their client can benefit from them in order to meet their care obligations. While securities and investments come with costs that must be considered, the type of securities account also has changes the cost equation for the investor and can change the retail customers’ future investment returns. The associated person must consider the different types of securities accounts for their client and determine whether or not the cost or features are reasonably needed for the client or if the customer’s current account costs and features are superior to solutions available to the advisor. In any event, the type of account and services recommended must be in the investor’s best interest.
Nicholas has been in the securities industry for more than 1 year. Nicholas has been registered as a Broker with Merrill Lynch, Pierce, Fenner & Smith Incorporated since 2020.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.