Securities Lawyers Blog
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.
Melzer entered the securities industry in 2008 when he became registered with Wells Fargo. Wells Fargo terminated Melzer’s registration on January 14, 2013. From March 2013 to January 2015, Melzer was associated with Park Avenue Securities LLC.
The allegations against Melzer 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.
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.
Investors who have suffered losses may be able recover their losses through securities arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors 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.