Articles Tagged with Girard Securities

shutterstock_189276023-300x198According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) advisor Dennis McMurray (McMurray), in August 2017, was terminated by his firm, Girard Securities, Inc. (Girard Securities) based on allegations that McMurray violated the firm’s policy on selling away and private securities transactions.  The firm also alleged that McMurray used a non-approved email address.  In addition, McMurray was barred from the industry by FINRA after FINRA requested documents and information related to an investigation into the circumstances surrounding his termination from Girard and McMurray refused to provide documents.

At this time it is unclear the extent and scope of McMurray’s private securities activities.  McMurray’s CRD lists that he is engaged in several outside business activities including 2 Truths – a mobile application development company, and is a part owner of Veritas IQ – a marketing, networking and personal development company.  At this time it is unclear whether or not McMurray’s private securities activities involve these entities or one that is not listed.

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”.

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shutterstock_168326705-199x300Our law firm, Gana Weinstein LLP, is investigating claims made by Financial Industry Regulatory Authority (FINRA) against advisor Gary Rasmussen. Rasmussen’s BrokerCheck records show customer complaints that allege that Rasmussen engaged in securities law violations, including making unsuitable investments in clients’ accounts.

The most recent customer complaint filed against Rasmussen was filed in October 2016. Allegedly, Rasmussen recommended investment products that were unsuitable and highly risky. The alleged damages are worth $178,892.00. The case is still pending.

In September 2012, a customer filed a complaint against Rasmussen alleging that the financial advisor recommended highly unsuitable investment products. Allegedly, Rasmussen also violated state and federal securities laws such as: failure to properly supervise, breach of his fiduciary duty, and lack of due diligence in the investment. The customer alleges that there was $475,000 in damages and the case is still pending.

shutterstock_146470052This article follows up on a recent article reported in Reuters concerning Atlas Energy LP’s private placement partnerships in oil and gas. Atlas Resources LLC, a subsidiary the energy group, has filed documents with the SEC for Atlas Resources Series 34-2014 LP stating that it seeks to raise as much as $300 million by Dec. 31 of 2014. The deal allows investors to participate in investments where advances in drilling technology have turned previously inaccessible reservoirs of oil into viable prospects. In addition, Atlas promises to invest up to $145 million of its own capital alongside investors.

In the last article we explored how the house seems more likely to win on these deals over investors. But beyond the inherent risks with speculating on oil and gas and unknown oil deposits most investors don’t realize the deals are often unfair to investors. In a normal speculative investment as the investment risk goes up the investor demands greater rewards to compensate for the additional risk. However, with oil and gas private placements the risks are sky high and the rewards simply don’t match up.

In order to counter this criticism, issuers say that the tax benefits of their deals where the investor can write off more than 90 percent of their initial outlay the year they make it helps defray the risk and increase the value proposition. First, the same tax advantage claims are often nominal compared to the principal risk of loss of the investment as seen by Puerto Rican investors in the UBS Bond Funds who have now seen their investments decline by 50% or more in some cases. Second, often times brokers sell oil and gas investments indiscriminately to the young and old who have lower incomes and cannot take advantage of the tax benefits.

In fact, of the 28 people interviewed by Reuters who invested in deals from Atlas, Reef Oil & Gas Partners, Discovery Resources & Development LLC, and Black Diamond Energy Inc. 17 were retirees who had low tax burdens when the product was recommended to them.

By now you may be asking, how do these deals even get issued? First, the private placement market is very opaque. Issuers are only required to file a statement to exempt the security from registration and a few other details about the investment. Second, investors rely upon the brokerage industry’s due diligence on each issue they sell to ensure its suitability for investors. But many brokers use outside due-diligence firms that may be paid by the issuer, a conflict of interest, when evaluating deals. Indeed, some of the largest securities frauds in the private placement space have been the result of reliance on third-party due diligence.

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shutterstock_103610648As recently reported in Reuters, Atlas Energy LP has marketed itself to investors as a way to get into the U.S. energy boom. By contributing at least $25,000 in a private placement partnership that will drill for oil and gas in states such as Texas, Ohio, Oklahoma and Pennsylvania and share in revenues generated from the wells. Atlas Resources LLC, a subsidiary the energy group, has filed documents with the SEC for Atlas Resources Series 34-2014 LP stating that it seeks to raise as much as $300 million by Dec. 31 of 2014. The deal sounds good when pitched: participate in investments where advances in drilling technology have turned previously inaccessible reservoirs of fossil fuels into potentially viable prospects and to boot Atlas will invest up to $145 million of its own capital alongside investors. Through this method and similar deals, oil and gas projects have issued nearly 4,000 private placements since 2008 seeking to raise as much as $122 billion.

But before you take the plunge a review of the Atlas’s offering memorandum reveals some red flags and given Atlas’ past failure rate investors should think twice. First, up to $45 million of the money raised will be paid to Atlas affiliate Anthem Securities that will then be turned over to as commissions to broker-dealers who pitch the deal to investors. Up to $39 million more will be used to buy drilling leases from another affiliate. Think investors will get a fair price on the leases when Atlas controls both sides of the deal? More conflicts ahead as Atlas affiliated suppliers may also get up to $53 million for buying drilling and transport equipment. Next, an additional $8 million of Atlas’s investment is a 15 percent markup on estimated equipment costs. Finally, Atlas will pay itself nearly $52 million in various other fees and markups.

In sum, at least 40% of Atlas’s $145 million investment alongside mom and pop goes right back to the company. In addition, Atlas’ profits don’t stop there, when the venture starts generating revenue Atlas is entitled to 33% before accounting for those payments and markups. In the end, not much of a risk at all for Atlas.

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The Financial Industry Regulatory Authority (FINRA) has barred broker Richard Manchester (Manchester) over allegations that his participation in several private placements caused his employing firm to fail to establish an escrow account for several contingency offerings, broke escrow before the minimum contingency amounts were met, and made unauthorized use of offering proceeds by lending offering proceeds to other private placements.  FINRA found that Manchester’s acts violated of Section 10(b) of Securities Exchange Act of 1934 and Rules 10b-5 and 10b-9 thereunder, NASD Rule 2110, and FINRA Rules 2020 and 2010.

From July 2004 through December 2010, Manchester was associated with Girard Securities, Inc. (Girard Securities).  During this time Manchester was involved in the offering of several private placement offerings.  One offering was Pacific Yogurt Partners, LLC (Pacific Yogurt) a limited liability corporation formed in 2007 to acquire franchise rights from Golden Spoon Frozen Yogurt.  The Pacific Yogurt private placement offered Series B and Series C Units in a contingency offering requiring the raising of a minimum amount of funds for the offering to proceed.  FINRA alleged that even though the private placement memorandum stated that funds received would be returned to investors if the minimum sales contingency was not met the funds were released to the issuer.  In addition, under the securities laws investor funds received before the satisfaction of the minimum sales contingencies were required to be deposited into a bank escrow account. Instead, FINRA found that the funds provided directly to Pacific Yogurt, the issuer.  FINRA alleged that Manchester’s conduct constituted a willful violation of Rule 10b-9, and a violation of NASD Rule 2110 and FINRA Rule 2010.

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