Selling Away

LPL Financial Advisor Raymond Schmidt Accused of Borrowing Millions for Hawaii Real Estate Investments

April 15, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Raymond Schmidt (Schmidt) due to Schmidt’s refusal to respond to requests made by the agency. FINRA found that from approximately May 2009, through November 2012, Schmidt borrowed approximately $2.25 million from seven customers of LPL Financial LLC (LPL) and also engaged in outside business activities without notifying the firm. FINRA also alleged that between 2009 and 2014, Schmidt submitted five false compliance questionnaires and three false disclosures of outside business activities and loans to the firm.

In July 2006, Schmidt became associated with LPL. In a termination notice dated September 24, 2014, the LPL reported that on August 25, 2014, Schmidt had resigned while under internal review by LPL.

FINRA found that in or around May 2009, Schmidt purchased a real estate investment in Hawaii that he developed into a vacation rental property. In May 2012 that property opened for business. FINRA found that Schmidt was the sole owner and operator of the property and the business but failed to notify LPL of this outside business activity. FINRA alleged that from approximately May 2009, through November 2012, Schmidt borrowed $2,254,818 from seven LPL customers for the purpose of purchasing the real estate in Hawaii and constructing a vacation rental property.

Financial Advisor Barry Hartman Alleged to Have Sold Investments in Invizeon Corporation

April 12, 2015 | by Staff Attorney

According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) financial advisor Barry Hartman (Hartman) was terminated by the firm due to alleged violation of firm policies including the participation in undisclosed outside business activities and private securities transactions, known as “selling away” in the industry.

Hartman was registered with brokerage firm FSC Securities Corporation (FSC) from 2002 until March 2015, when the broker was terminated. During this time Hartman conducted his securities business through an entity called Rocky Mountain Financial, LLC. While the size and scope of Hartman’s activities is still under investigation, investors have come forward claiming that Hartman sold them promissory notes and warrants in a company called Invizeon Corporation.

Invizeon is a Montana based software business that develops software platforms and solutions for government and enterprise organizations. The software includes platforms to manage information from sensing and detection technologies. In recent years, Invizeon has acquired several businesses including Seafaring Security Services, Slipstream Resources, and Gaga Africa. Invizeon continues to raise capital through private placement regulation D offerings. Moreover, on those filings Hartman has been listed as an owner of Invizeon.

Former IBN Financial Broker Brian Exford Barred Over Private Securities Sales

April 10, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred broker Brian Exford (Exford) concerning allegations Exford refused to appear for on-the-record testimony requested by FINRA in connection with an investigation into possible private securities transactions (also referred to as “selling away”). According to FINRA BrokerCheck records Exford was disclosed outside business activities include Ives Hill Retirement. It is unclear whether FINRA’s investigation concerns this particular outside business activity. In addition, there is one customer complaint pending alleging unsuitable investments in a secondary market pension.

ln November 2002, Exford first became registered with FINRA as an Investment Company Products and Variable Contracts Representative (Series 6). From August 2009 through October 2012, Exford was registered with IBN Financial Services, Inc. (IBN Financial). Thereafter, from November 2012 to March 2015, Exford was registered through State Farm VP Management Corp.

According to FINRA, in January, 2014, the agency began investigating whether Exford had engaged in a private securities transaction. As part of its investigation, on January 13, 2015, FINRA sent a request to Exford’s attorney for on-the-record testimony. According to FINRA, Exford’s attorney stated on a call with FINRA staff on January 30, 2015, that he will not appear for on-the-record testimony at any time. Consequently, Exford was barred by FINRA.

Former PFS Investments Broker Michael Korson Barred Over My Coupon Genie Investment Sales

April 8, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred broker Michael Korson (Korson) concerning allegations that from February 2011 through August 2012, Korson failed to disclose to PFS Investments, Inc. (PFS) his involvement with an outside business (also referred to as “selling away”) called My Coupon Genie, Inc. (My Coupon Genie). In addition, FINRA alleged that between September 2011 and May 2014, while registered with PFS and also HBW Securities LLC (HBW) Korson participated in private securities transactions involving My Coupon Genie without providing prior written notice to either firm. FINRA also found that Korson misused My Coupon Genie investor funds by charging personal expenses to the company’s credit card.

Korson first became registered with FINRA on in 1991 as an Investment Company Products/Variable Contracts Representative (Series 6) representative with PFS. Thereafter, on February 21, 2013, Korson’s registration with PFS was terminated and from January 27, 2014 through July 21, 2014, Korson was registered with HBW.

According to FINRA, Korson is the founder, chief executive officer, board member, and majority owner of My Coupon Genie, which purports to provides an on-line platform for retailers to share promotional offers on goods and services with consumers. PFS required its brokers to disclose and obtain preapproval for all outside business activities. FINRA found that PFS received notice of Korson’s involvement in My Coupon Genie on August 2, 2012, 18 months after Korson’s first involvement in the company.

Josh Abernathy Accused of Running Investment Scheme Through Omega Investment Group

April 7, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently barred broker Josh Abernathy (Abernathy) due to Abernathy’s refusal to respond to requests made by the agency. In addition, the U.S. Attorney for the Eastern District of Virginia charged Abernathy with mail fraud and conducting unlawful monetary transactions. The complaint alleges that Abernathy stole $1.3 million from at least 14 victims located throughout Virginia and Texas. In order to carry out the alleged fraud scheme, Abernathy created an entity called Omega Investment Group (Omega).

ln 2000, Abernathy first became registered with a FINRA firm. From March 2007 until September 2012, Abernathy was associated with NEXT Financial Group, Inc (NEXT Financial). Thereafter, from February 2013 through August 2014, Abernathy was associated with The O.N. Equity Sales Company (ONESCO).

According to the complaint Abernathy told investors and clients that there the investments would generate guaranteed returns of between 10 to 20 percent. Abernathy’s victims included widows, single mothers, and church friends. In reality, instead of making legitimate investments, Abernathy used investor funds for his own personal trading account through E*Trade, where he lost the funds, or used for the money to fund personal expenses. Abernathy’s pitch allegedly was that investor money would be placed in certain options, puts, and calls through Omega. Abernathy also allegedly sent fake quarterly statements to the investors which he altered in order to show investment profits that did not actually exist.

Gana LLP Broker Investigation: Patric Baccam (a/k/a Khanh Sengpraseuth) Promissory Note Sales

April 3, 2015 | by Staff Attorney

The law offices of Gana Weinstein LLP are investigating customer complaints concerning Patric Baccam (Baccam) (a/k/a Khanh Sengpraseuth) sale of promissory notes in securities transactions that appear to have been away from the firm (also referred to as “selling away”). According to The Financial Industry Regulatory Authority (FINRA) BrokerCheck records Baccam was registered with brokerage firm Centaurus Financial, Inc. (Centaurus) from February 2002 until December 2011. According to the records Baccam’s outside business activities include flipping real estate, vending machine leasing, and health and life insurance.

Baccam has also been subject to at least five customer complaints. Some of these complaints allege that Baccam solicited clients to invest in promissory notes through The Moret Group LLC, The PR Group, and The Precision Research Group, LLC. The complaints allege fraud, fraudulent misrepresentation, negligence, breach of fiduciary duty, and violation of California securities laws.

The allegations against Baccam are consistent with “selling away” securities violation. 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 the brokerage firm claim ignorance of their advisor’s activities, under the FINRA rules, a brokerage firm owes a duty 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 often occurs in brokerage firm that 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.

FINRA Bars Former Legend Equities Principal Jerry Chancy Concerning Outside Business Activities

March 26, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and barred broker Jerry Chancy (Chancy) concerning allegations that Chancy potentially engage in outside business activities and/or the sales of private securities. When a broker’s outside business activities also include the recommendation of investments the activity is referred to in the industry as “selling away.”

FINRA Rule 8210 authorizes FINRA to require persons associated with a FINRA member to provide information with respect to any matter involved in the investigation. In December 2014, FINRA alleged that it pursued an investigation into allegations that Chancy engaged in undisclosed outside business activities. On January 29, 2015, FINRA requested that Chancy appear and provide testimony. FINRA stated that Chancy told the regulator that he would not provide information or cooperate in the investigation. Consequently, he was barred from the industry It is unclear what organization or product Chancy was involved with or selling that FINRA was investigating.

Chancy first became registered with FINRA through his association with a member firm in 1988. From November 2006 through January 2015, Cadwallader was associated with Legend Equities Corporation.

FINRA Bars Former Ameriprise Broker Ted Cadwallader Concerning Private Securities

March 24, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and barred broker Ted Cadwallader (Cadwallader) concerning allegations that Cadwallader engage in outside business activities including the sales of private securities. When outside business activities also include the recommendation of investments the activity is referred to in the industry as “selling away.”

FINRA Rule 8210 authorizes FINRA to require persons associated with a FINRA member to provide information with respect to any matter involved in the investigation. In August 2014, FINRA alleged that it pursued an investigation into allegations that Cadwallader engaged in undisclosed outside business activities. On November 21, 2014, FINRA requested that Cadwallader appear and provide testimony. FINRA stated that Cadwallader told the regulator that he would not provide information or cooperate in the investigation. Consequently, he was barred from the industry

According to Cadwallader’s brokercheck he has disclosed outside business activities including ownership of The Faith Based Coach. Cadwallader is also on the board of directors of Pacer BioScience and a board member of EarthEnergy Technologies LLC. It is unclear at this time what organization or product Cadwallader was involved with or selling that FINRA was investigating.

FINRA Files Complaint Against Chris Fulco Over US Coal Corporation Transactions

March 15, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently filed a complaint against broker Chris Fulco (Fulco) concerning allegations that Fulco facilitated the sale of stock in US Coal Corporation, Inc. (US Coal), in numerous private securities transactions away from his firm, aslo known as “selling away” in the industry. FINRA alleged that Fulco received significant compensation for facilitating these transactions in the amount of $601,159. In addition, FINRA alleged that Fulco lied to FINRA about his involvement in these transactions by providing false sworn testimony that many of the wire transfers he received were not related to sales of US Coal shares but rather were payments for his role in transactions involving gold. Further, FINRA alleged that Fulco tried to encourage the primary seller of US Coal securities in the transactions, known by the initials “LF”, not to appear for his scheduled testimony or to testify falsely about the transactions in order to corroborate Fulco’s own false testimony. Finally, FINRA alleged that Fulco failed to timely disclose to FINRA a lien and civil judgment entered against him.

Fulco entered the securities industry in 1999. From June 2007 to June 2010, Fulco was registered with vFinance Investments, Inc. (vFinance). From July 2010 to February 2011, he was registered with Charles Morgan Securities, Inc. (Charles Morgan). Thereafter, from March 2011 to December 2011, he was registered with Caldwell International Securities, Inc. (Caldwell International). Finally, Fulco was registered with Chelsea Financial Services until November 8, 2013.

According to FINRA, in or around August 2009, LF engaged vFinance and another individual referred to as “PCA”, to help sell his shares in US Coal, a non-public company that produces coal in Appalachia. LF acquired US Coal shares through various entities in or around 2006 after helping found the company. In or around September 2009, FINRA alleged that vFinance approved Fulco facilitation of the sale of 300,000 shares of LF’s US Coal stock to a customer referred to by the initials “MM”, a vFinance customer.

FINRA Bars Douglas Melzer Concerning Aquatic Synthesis Unlimited Investments

March 15, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and barred broker Douglas Melzer (Melzer) concerning allegations that Melzer participated in four private securities transactions when four of his Wells Fargo Advisors, LLC (Wells Fargo) customers invested $2,000,000 in a company called Aquatic Synthesis Unlimited (Aquatic Synthesis) through investment contracts that were not approved by Wells Fargo. According to FINRA, Melzer received at least $27,000 plus a 2.5% member interest in the investment as compensation for the recommendations. FINRA found that Melzer failed to provide written notice to the firm or receive approval prior to participating in the private securities transactions also known as “selling away” in the industry.

Aquatic Synthesis is a gas drilling waste water treatment facility located in Indiana County. According to news sources , in or about August 2013, after several spills and at least four violation orders, state environmental regulators have shut down the company’s operations. The state Department of Environmental Protection revoked Aquatic Synthesis’ permit and started to use the company’s $1 million bond to begin cleaning up the site.

In addition, FINRA found that in May 2011, the firm became aware that Melzer had requested that the broker codes on certain accounts be altered. These codes are used by Wells Fargo to determine the appropriate split of commissions between Melzer and his partners. By changing the code, Melzer caused commissions that should have been paid to one of Melzer’s partners to be attributed to Melzer without the partner’s knowledge.