FINRA Accuses Advisor Dawn Bennett of Wrongfully Selling Promissory Notes

shutterstock_172399811-297x300Our law offices are continuing its investigation and the recent developments in the Dawn Bennett (Bennett) case.  Recently the Financial Industry Regulatory Authority (FINRA) filed a complaint alleging that Bennett sold $6 million in promissory notes concerning her retail clothing business – owned by DJB Holdings, LLC.  As a background, we previously reported that The Securities and Exchange Commission (SEC) filed fraud charges against Bennett, a Maryland-based financial services firm and founder/CEO of Bennett Group Financial Services accusing her of grossly inflating the amount of managed assets and exaggerating the investment returns actually obtained for customers.

Thereafter, on July 11, 2016, the SEC barred Bennett from the securities industry for violating federal securities rules by for making material misrepresentations and omissions regarding her assets under management. See ln the Matter of Bennett Group Financial Services, LLC & Dawn J. Bennet, File No. 3-16801.  Bennett also was ordered to cease and desist from any further violations of the federal securities rules, pay disgorgement of $556,102, and pay a civil penalty of $600,000.

FINRA continued investigating Bennett’s activities and alleged in its recent complaint that Bennett, while associated with Western International Securities, Inc., had a retail clothing business called owned by DJB Holdings, LLC.  FINRA found that during 2015 Bennett sold approximately $6 million in DJB convertible notes and promissory notes guaranteed by, to approximately 30 investors. FINRA also uncovered evidence that Bennett may have misappropriated investors’ money, committed fraud, and engaged in undisclosed outside business activities and private securities transactions.

The providing of loans or selling of notes and other investments outside of a brokerage firm constitutes impermissible private securities transactions – a practice known in the industry as “selling away”.  Often times brokers who engage in this practice use their connections in the financial industry in order to market and amass clients for their outside businesses.

Bennett entered the securities industry in 1987. From 2006, until October 2009, Bennett was associated with Royal Alliance Associates, Inc. Thereafter, from October 2009, till December 2015 Bennett was associated with Western International Securities, Inc.

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.

The investment fraud attorneys at Gana Weinstein LLP have represented hundreds of investors in securities related disputes including 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.

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