Selling Away

FINRA Bars Broker Daniel Kasbar In Connection With Undisclosed Outside Business Activities

December 6, 2015 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating Daniel Kasbar (Kasbar) bar from the securities industry. The Financial Industry Regulatory Authority (FINRA) recently brought an enforcement action (FINRA No. 2015045744901) against Kasbar alleging that between 2010 and 2015, Kasbar engaged in an outside business activity beyond the scope of the approvals provided by his FINRA member firm – also referred to as “selling away” in the industry – HD Vest Investment Services (HD Vest) and LPL Financial, LLC (LPL). On September 17, 2015 FINRA requested that Kasbar provide documents and information. Kasbar did not provide any of the requested documents and information drawing an automatic bar from the industry.

Kasbar entered the securities industry in February 2011. Between February 2011 and March 2014, Kasbar was associated with HD Vest. From March 2014 until June 2015, Kasbar was associated with brokerage firm LPL until he was discharged from the firm.

It is unclear from the regulatory filings what the nature of the outside business activities were but from publicly available information, Kasbar’s brokercheck disclosures reveal several outside business activities including Kasbar Financial, Daniel G. Kasbar & Company, Inc. – a general contracting company, Emerald Village Professional Plaza, Kasbar Consulting – a tax prep, accounting, bookkeeping firm, and A R K Construction Company, Inc.

FINRA Bars Broker Clifford Morgan In Connection With the Sale of Over Promissory Note Sales

December 5, 2015 | by Staff Attorney

The securities lawyers of Gana Weinstein LLP are investigating Clifford Morgan (Morgan) bar from the securities industry. The Financial Industry Regulatory Authority (FINRA) recently brought an enforcement action (FINRA No. 2011025610501) against Morgan alleging that between November 2011 and December 2014, while he was associated with brokerage firm Uhlmann Price, Securities, LLC (Uhlmann Price) Morgan participated in private securities transactions – also referred to as “selling away” in the industry – without providing notice to his firm. FINRA also found that in engaging in the private securities transactions Morgan made material misrepresentations to customers and also participated in numerous outside business activities without providing the required notice to the firm.

Clifford Morgan entered the securities industry in January 2004. Between January 2007 and December 2014, Morgan was associated with Uhlmann Price. On December 5, 2014, Uhlmann Price filed a Form U5 reporting that Morgan had been “permitted to resign” with the explanation that the ”registered representative participated in private securities transactions in conflict with firm policies.”

It is unclear from the regulatory filings what companies were invested in but from publicly available information, Morgan’s brokercheck disclosures reveal several outside business activities including US College Planning, W&C Business Management, Strategis Wealth Consulting, and Strategis Wealth Advisory Group.

Source Capital Group Discharges Broker Robert Turpin Over Unauthorized Business Activities

November 12, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Robert Turpin (Turpin) was recently discharge from Source Capital Group, Inc. (Source Capital) relating to the firm’s allegations that Turpin engaged in unapproved and undisclosed outside business activities – also referred to in the industry as “selling away.”

It is unclear the nature of the outside business activities from publicly available information at this time. However, Turpin’s Brokercheck disclosures reveal numerous outside business activities including:

Tartesso West Multi Family LLC

FINRA Bars Broker Jeffrey Mohlman Over Private Securities Transactions

November 9, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) brought and enforcement action against broker Jeffrey Mohlman (Mohlman) (FINRA No. 2015044734401) resulting in a bar from the securities industry alleging that Mohlman failed to provide FINRA staff with information and documents requested. The failure to provide those documents and information to FINRA resulted in an automatic bar from the industry. FINRA’s document requests related to the regulators investigation into claims the Mohlman engaged in unapproved and undisclosed private securities transactions – also referred to in the industry as “selling away.”

FINRA’s investigation appears to stem from Mohlman’s termination from Questar Capital Corporation (Questar Capital) in February 2015. At that time Questar Capital filed a Form U5 termination notice with FINRA stating in part that the firm permitted Mohlman to resign under circumstances where there was allegations that Mohlman was under internal review for failure to follow firm policies and procedures regarding participation in private securities transactions. It is unclear the nature of the outside business activities from publicly available information at this time. However, Mohlman’s brokercheck disclosures reveal several outside business activities including being a co-owner of NexGen Vapors – a vapor needs business – and Ann Arbor Annuity Exchange where Mohlman discloses that he works as an insurance agent.

Mohlman entered the securities industry in 2001. From October 2002 until March 2009, Mohlman was associated with MetLife Securities Inc. Thereafter, from June 2009 until May 2011, Mohlman was associated as a registered representative with Investacorp, Inc. Finally, from June 2012 until March 2015, Mohlman was associated with Questar Capital.

FINRA Suspends Former LPL Financial Broker Walter Chao Over Private Securities Transactions

October 8, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned and suspended for two year broker Walter Chao (Chao) (FINRA No. 2012034046301) alleging that between February and May 2012, while registered with LPL Financial LLC (LPL Financial), Chao participated in nine private securities transactions totaling $1.27 million without LPL’s approval. According to FINRA, Chao attempted to conceal his participation in the private securities transactions by using an unapproved email address and providing false and misleading answers in a compliance questionnaire. In addition, FINRA claimed that Chao also provided false and misleading statements to FINRA regarding his involvement in the private securities transactions. In addition, FINRA found that Chao was also a branch manager and failed to adequately supervise certain conduct such as being aware that staff under his supervision were using blank signed forms and unapproved email addresses.

Chao entered the securities industry in June 2003. In August 2007, Chao joined LPL Financial. LPL Financial terminated Chao’s registration in September 2012 for violating firm policies and procedures relative to participation in private securities transactions away from the firm without firm authorization. From October 2012 to January 2015, Chao was registered with Purshe Kaplan Sterling Investments.

FINRA alleged that in late 2011, Chao learned that a firm had created a special purpose vehicle (SPV) to purchase pre-initial public offering (IPO) shares of Facebook. By using the SPV investors could purchase ownership interests in the SPV in order to participate in the Facebook IPO. FINRA found that Chao wanted to solicit his customers to purchase interests in the Facebook SPV but knew that he was required to get approval from LPL Financial before doing so. Chao requested approval but LPL Financial denied his request.

Gana LLP Files $3.7 Million FINRA Arbitration Complaint on Behalf of Investors In Connection with Paul Godlewski’s Investment Scheme

October 6, 2015 | by Staff Attorney

The law offices of

Gana Weinstein LLP has filed an arbitration complaint before the Financial Industry Regulatory Authority (FINRA) alleging damages in excess of $3.7 million against Allstate Financial Services, LLC (Allstate) and the estate of Paul J. Godlewski (Godlewski). The complaint alleges improper supervision and selling away related to Godlewski’s fraudulent Ponzi scheme. Godlewski’s scheme was targeted at the retirement savings of around two dozen victims, mostly in the Pennsylvania area. The complaint alleges that Allstate failed to properly supervise and enforce compliance measures over Godlewski, one of Allstate’s registered representatives. The failure to supervise was alleged to cause violations of federal, state securities laws, and the financial industry’s rules and regulations. The complaint alleged that these investors, many of whom used IRA or 401K proceeds, have lost substantially all of their investment.

“I believe there are more victims out there who are in need of help to assert their rights under the securities industry rules,” according to securities attorney Adam Gana. As background on Godlewski, the broker was barred from the securities industry by FINRA in April 2015 after failing to respond to the regulator’s requests concerning his activities. In June 2015, Godlewski passed away. After Godlewski’s death many of his investors received letters from Godlewski’s estate stating that the estate was conducting a four to six months accounting on the assets and liabilities left behind by Godlewski. Beyond these brief correspondence, investors have been left in the dark as to the status of their funds.

In the complaint, it is alleged that Godlewski created a fictional persona of a brilliant venture capital fund manager in order to sell investors. Godlewski claimed that he created innovative trading algorithms and and managed funds with $100 million in assets under management. To promote this persona Godlewski made appearances on television talk shows such as Money Matters purporting to be the president of Global Enterprise Investment Venture Capital a/k/a GEIVC. GEIVC was one of the fraudulent funds that the complaint alleged Godlewski sold to claimants. Over time Godlewski’s scheme is alleged to evolved and improved in order to better protect Godlewski from being found out. These other more sophisticated funds include Tall Tree Note Fund I, LP (Tall Tree), another Godlewski fund, and 611 Swede Street LLC, a real estate property investment.

FINRA Bars Former PFS Investments Broker Malcolm Babin From the Industry

September 20, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) barred (FINRA AWC No. 20150454876-01) former PFS Investments, Inc. (PFS Investments) broker Malcolm Babin (Babin) after the broker failed to respond to a letter from the regulator requesting information. While BrokerCheck records kept by FINRA do not disclose the nature of the regulatory inquiry, in May 2015, Babin was permitted to resign from PFS Investments stating that the broker was terminated for 1 being involved in a misappropriation; 2) unlicensed security solicitation, and 3) an undisclosed outside business activity and potentially a private securities transaction – also referred to in the industry as “selling away.”

Babin entered the securities industry in 2007 with PFS Investments as a Series 6 broker. A Series 6 license only allows the broker to solicit variable contracts and open-end mutual funds and does not allow the broker to solicit general securities. FINRA alleged that on July 7, 2015 FINRA was investigating allegations that Babin converted customer funds and engaged in undisclosed outside business activities. FINRA requested that Babin provide documents and information by July 14, 2015. The regulatory stated that they received an email from Babin acknowledging receipt of FINRA’s requests for documents but informed staff that he would not cooperate. Consequently, the regulator barred Babin from the securities industry.

The conduct alleged against Babin constitutes a potential “selling away” securities violations. 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.

FINRA Sanctions Sylvester King Jr. Over Improper Loans and Private Securities Transactions

August 24, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) sanctioned (Case No. 2013036262101) broker Sylvester King Jr. (King) concerning allegations that from July 2009, through November 2012, while King was registered Morgan Stanley Smith Barney LLC (Morgan Stanley) and later Wells Fargo Advisors, LLC (Wells Fargo), circumvented Wells Fargo’s policies and procedures by assisting another broker in concealing nearly $400,000 in loans to three firm customers, loaned $25,000 to a customer without permission, participated in an undisclosed private securities transaction, otherwise referred to in the industry as “selling away”, where eight customers invested more than $3 million, and provided false information to Morgan Stanley on two separate questionnaires.

King entered the securities industry in 1999. From 2006, until June 2009, King was registered with Citigroup Global Markets Inc. (Citigroup). From June 2009, until October 2010, King was associated with Morgan Stanley. Thereafter, from October 2011, until May 2015, King was associated with brokerage firm Wells Fargo. On April 27, 2015, Wells Fargo filed a notice of Termination Form U-5 on the same day that FINRA entered into its agreement with King in which King accepted a fine and sanctions stating that King was discharged from the firm because of the settlement with FINRA which included an 18 month suspension. Thereafter, FINRA filed a second regulatory action stating that King failed to pay the $35,000 required as part of the settlement as of July 28, 2015.

FINRA alleged that in 2009, King and his partner referred to by the initials “AP”, formed PKG, a d/b/a branch office located in Florida registered through Morgan Stanley and then Wells Fargo. PKG allegedly provided financial “concierge” services to professional athletes who played in the NFL and the NBA. FINRA alleged that King committed the violations contained in the complaint for the supposed benefit, of several of these athletes.

Julius Kenney Formerly of LPL Financial Barred Over Outside Business Activities Investigation

August 11, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred broker Julius Kenney (Kenney) concerning allegations Kenney refused cooperate with requests made by FINRA in connection with an investigation into possible outside business activities. Such activities may, under certain circumstances also involve investment transactions referred to as “selling away” in the industry. According to FINRA BrokerCheck records Kenney has disclosed that he operates as a LPL Financial LLC (LPL Financial) broker under the DBA Frank Kenney Wealth Management in Calhoun, Georgia. There is one customer complaint against Kenney alleging that the broker solicited an investment in a business referred to as Mellow Mushroom in or around October 2013.

Kenney entered the securities industry in 2008, when he became associated with Edward Jones. Thereafter, Kenney became associated with LPL Financial in 2011 before leaving for Dempsey Lord Smith, LLC in July 2012 through September 2013. Finally, in September 2013, Kenney came back to LPL Financial until his termination in June 2015. On May 22, 2015, LPL Financial filed a termination notice (known as a Form U5) with FINRA disclosing that Kenney was discharged from the firm for participating in an undisclosed outside business activity.

The conduct alleged against Kenney may lead to “selling away” securities violations. 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 Advisor James Ham Over Outside Business Activities

August 7, 2015 | by Staff Attorney

According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker James Ham (Ham) has been the subject of at least two customer complaints, one financial matter, three regulatory events, two employment separations, and one judgement/lien. Recently, FINRA barred the broker for failing to cooperate in the agencies investigation into allegations that a customer of Ham’s deposited of approximately $170,000 into Ham’s undisclosed outside business. Such activities are referred to as “selling away” in the industry. The customer complaints against Ham allege a number of securities law violations including that the broker made unsuitable investments concerning variable annuities among other claims.

Ham entered the securities industry in 1988. From March 2006, until October 2014, Ham was registered with First Independent Financial Services (First Independent). Upon termination from First Independent the firm filed a Uniform Termination form (Form U5) stating that the reason for the firm’s termination of Ham was due to allegations by the firm that Ham executed discretionary transactions in a variable annuity owned by customers without obtain authorization from the customers or the firm to make such trades.

The latest FINRA investigation is not the only action the regulatory took against Ham. In October 2014, Ham entered into another consent order with FINRA concerning the reasons for his termination from First Independent, namely that he made discretionary trades in the variable annuity accounts of his customers without authorization. That consent order resulted in a 60 day suspension and a $5,000 fine. However, it appears FINRA was not paid the fine and the agency brought a second action against Ham. At some point FINRA then began to investigate the outside business activity that ultimately resulted in Ham being ousted from the industry.