Selling Away

David Chu Formerly of NYLife Securities Barred Over Private Transactions Investigation

July 21, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred David Chu (Chu) concerning allegations Chu refused cooperate with requests made by FINRA in connection with an investigation into possible outside business activities and private securities transactions. Such activities are often referred to as “selling away” in the industry. According to FINRA BrokerCheck records Chu has no outside business activities listed. It is unclear what businesses or investments FINRA’s investigation concerns.

Chu entered the securities industry in 2004, when he became associated with NYLife Securities LLC (NYLife). Chu held a Series 6 license which is a license that only allows the broker to sell investment companies (i.e. mutual funds) and variable contracts products. On March 16, 2015, NYLife filed a termination notice (known as a Form U5) with FINRA disclosing that Chu was discharged from the firm under circumstances that included a notification from the SEC that the agency was reviewing Chu’s books and records including his outside business activities and private securities transactions. NYLife conducted its own review and believed that Chu’s activities exceeded the scope of his approved activities with the brokerage firm.

According to FINRA, in April 2015, the agency began investigating whether Chu had engaged in outside business activities by soliciting investments or promissory notes. As part of its investigation FINRA sent a request to Chu for certain documents and information. According to FINRA, Chu provided a partial response to FINRA but thereafter through subsequent communications stated on a call with FINRA staff that he will not cooperate with the investigation. Consequently, Chu was barred by FINRA.

Former Wells Fargo Broker Douglas Melzer Barred Over Private Securities Transactions

June 24, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred broker Douglas Melzer (Melzer) concerning allegations that between November 2011, and May 2012, while registered with Wells Fargo Advisors, LLC (Wells Fargo), Melzer solicited four customers to invest $2,000,000 in an outside investment without providing his firm notice. According to FINRA Melzer was compensated at least $26,500. Unapproved sales activities and transactions are referred to as “selling away” in the industry.

Melzer entered the securities industry in 2008 when he became registered with Wells Fargo. Wells Fargo terminated Melzer’s registration in January 2013 in connection with his unapproved sales activity. Melzer was registered with Park Avenue Securities LLC from March 2013, through January 2015.

The conduct alleged against Melzer is a “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 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.

Wells Fargo Broker Aaron Parthemer Barred Over Private Securities Sales

May 19, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) barred broker Aaron Parthemer (Parthemer) concerning allegations that Parthemer engaged in private securities transactions – also known as “selling away.” FINRA alleged that from June 2009, through March 2013, Parthemer engaged in several undisclosed outside business activities, loaned nearly $400,000 to three firm customers without permission from his firm, presented an undisclosed private securities transaction through which eight firm customers invested more than $3 million, and provided false information and false documents to Morgan Stanley, Wells Fargo, and FINRA.

In October 1994 Parthemer first became registered with FINRA firm. From June 2009, through October 21, 2011, he was registered through Morgan Stanley Smith Barney LLC (Morgan Stanley). On November 4, 2011, Morgan Stanley filed a filed a termination notice stating that Parthemer’s termination from the firm was voluntary. From October 21, 2011, until May 2015, Parthemer was registered with Wells Fargo Advisors, LLC (Wells Fargo).

FINRA found that from approximately July 2009, through February 2012, Parthemer participated in a private securities transaction regarding a company referred to by the initials “GVC”, a startup internet branding company managed by a friend of Parthemers referred to by the initials “GH”. FINRA alleged that Parthemer referred several of his NFL and NBA clients to his friend for the purpose of investing in GVC. Subsequently, approximately eight of Parthemer’s clients purchased approximately $3.08 million of preferred GVC stock. FINRA found that Parthemer facilitated the transactions by hosting a presentation for investors conducted by GH at Parthemer’s home, sending PowerPoint presentations and other information concerning GVC to potential investors, and forwarding and retrieving required documentation to and from investors.

James Neilsen and Catherine Sheridan Accused of Being Involved Ulysses Partners Unregistered Securities

May 11, 2015 | by Staff Attorney

The attorneys of Gana Weinstein LLP are investigating a series of actions by the Connecticut Department of Banking (the Commissioner) involving James Neilsen (Neilsen), Neilsen Financial Services (NFS), Ulysses Partners, LLC (Ulysses), and Catherine Sheridan (Sheridan) and allegations that Neilsen sold over $10,000,000 in unregistered securities offerings to customers. The actions are Docket No. CRF-13-8014-S and CRF-15-8175-S. The Commissioner alleged that from approximately November 2005 through approximately December 2010, Neilsen offered and sold approximately $10 million of securities to at least ten Connecticut investors who were mostly his CPA clients. These funds were allegedly used primarily to finance Ulysses’ business expenses.

Neilsen was previously registered as a broker-dealer agent of Tradition Asiel Securities Inc. (Tradition Asiel) from December 17, 2004 to July 2, 2007, and with Sound Securities, LLC (Sound Securities) from August 7, 2008 to December 9, 2009. Neilsen was also registered with the National Futures Association (NFA) as an associated person of Longship Alternative Asset Management (Longship) from April 5, 2010 to December 29, 2010. In addition, Neilsen has been a Certified Public Accountant (CPA) with the Connecticut State Board of Accountancy since October 9, 1986. Neilsen was a founding member, chief financial officer, and treasurer of Ulysses and handled all of Ulysses’ day-to day financial decisions. Ulysses is now a defunct Illinois limited liability company but was a third-party marketer of hedge funds whose main function was to introduce and market hedge funds to financial institutions in exchange for the hedge funds paying Ulysses a fee.

According to the Commissioner Neilsen along with three other parties formed Ulysses as a self-described “third-party marketer” to solicit and refer prospective institutional investors to hedge funds. Two of those parties resigned from Ulysses within several months of Ulysses’ inception and were never actively involved in Ulysses’ activities. The third party, Sheridan was alleged to be a founding member, chief executive officer, and control person of Ulysses until she resigned from Ulysses in 2010. The Commissioner claimed that Sheridan handled all of the marketing and networking functions at Ulysses. The Commissioner found that Sheridan and Neilsen split revenues generated by Ulysses equally. In addition, Sheridan was previously registered as a broker-dealer with Tradition Asiel from August 10, 2004 to July 2, 2007, and with Sound Securities from July 25, 2007, to October 7, 2010. Sheridan is currently registered with FINRA as a general securities representative, general securities principal, options principal and equity trader with the brokerage firm North South Capital, LLC (North South). Sheridan is also currently registered with PE Investments LLC, a commodity pool operator associated with the NFA.

Former Edward Jones Advisor Daniel Retzke Barred Over Private Securities Investigation

April 21, 2015 | by Staff Attorney

The Financial Industry Regulatory Authority (FINRA) recently sanctioned and barred broker Daniel Retzke (Retzke) concerning allegations Retzke refused to appear for on-the-record testimony requested by FINRA in connection with an investigation into possible private securities transactions and the soliciting of a loan (also referred to as “selling away”). According to FINRA BrokerCheck records Retzke has disclosed outside business activities include Country Inn & Suites, Galena Lodging Photography, Galena Lodging, and Retzke LLC. It is unclear whether FINRA’s investigation concerns these particular outside business activity. In addition, there have been at least three customer complaints filed against Retzke some which allege unsuitable investments.

ln December 1983, Retzke first became registered with a FINRA firm. In January 1992, Retzke became associated with Edward Jones. On November 13, 2014, Edward Jones filed a Uniform Termination Notice with FINRA disclosing that Retzke was discharged on October 14, 2014.

According to FINRA, in January, 2015, the agency began investigating whether Retzke had engaged in a private securities transaction and solicited a loan from a client. As part of its investigation, on January 30, 2015, FINRA sent a request to Retzke. According to FINRA, Retzke stated on a call with FINRA staff on February 3, 2015, that he will not cooperate with the investigation. Consequently, Retzke was barred by FINRA.

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.