Securities Lawyers Blog
Currently financial advisor Mark Martino (Martino), currently employed by brokerage firm the Benchmark Company, LLC has been subject to at least 3 disclosable events. These events include one customer complaint, 2 regulatory events. According to a BrokerCheck reports most of the recent customer complaints concern either corporate debt securities or alternative investments such as direct participation products (DPPs) like business development companies (BDCs), non-traded real estate investment trusts (REITs), oil & gas programs, annuities, and private placements. The attorneys at Gana Weinstein LLP have represented hundreds of investors who suffered losses caused by these types of high risk, low reward products.
FINRA BrokerCheck shows a final customer complaint on August 15, 2022.
Without admitting or denying the findings, Martino consented to the sanctions and to the entry of findings that he failed to conduct reasonable ongoing due diligence for a private placement offering by a Canadian start-up company. The findings stated that Martino learned that the United States Federal Trade Commission (FTC) had sued the company’s founder for fraud in connection with a different company that he had previously founded. Martino also learned that the FTC had obtained a court order freezing the founder’s assets as well as the assets of any companies he owned or controlled. Before the start of the offering’s selling period, Martino recognized the FTC’s lawsuit against the founder to be a red flag given his role with the company. After selling began, the FTC sought to freeze all of the company’s assets and to hold the company’s chief executive officer (CEO) in contempt for funneling the company’s assets to the founder for his personal use. Martino was unaware of these developments during the three-month offering period because he unreasonably relied on the issuer to keep him apprised of developments in the lawsuit, even though some prospective investors were reluctant to invest due to concerns with the lawsuit and one investor demanded his money back after learning of the lawsuit. Shortly after the end of the selling period, the court held the CEO in contempt and issued an order requiring the company to transfer $1.205 million to a court-appointed receiver. The company subsequently failed to repay the investors in the offering when the debenture units matured. Martino personally received $61,248 in placement agent fees from sales of the offering subsequent to the developments in the FTC lawsuit. The findings also stated that Martino recommended the offering to his member firm’s customers without a reasonable basis. Martino did not request a written explanation of the FTC lawsuit from the issuer, did not take steps to verify oral representations regarding developments in the lawsuit, did not review the lawsuit’s public docket, and took no steps to otherwise track developments in the lawsuit. By failing to conduct reasonable ongoing due diligence of an acknowledged red flag, Martino failed to timely learn of material developments in the FTC lawsuit and thus did not have a reasonable understanding of the potential risks of the offering. As such, Martino lacked a reasonable basis to continue to recommend the offering to customers. The findings also included that Martino failed to reasonably supervise the firm’s due diligence of the offering. Martino was the representative at the firm who conducted the due diligence of the offering, and was also the firm’s designated supervisor for diligence of private placements. In addition, Martino was the firm’s CEO and the designated supervisor for its main office. Given his roles, Martino was responsible for implementing the firm’s supervisory system including as it related to private placements. The firm’s written supervisory procedures (WSPs) required the firm to conduct due diligence of each private placement offered by the firm and to update its due diligence as needed until effectiveness of the offering. Martino and his firm, however, did not implement a reasonable process for conducting ongoing due diligence. While the firm’s WSPs also required it to review any red flags and not simply rely on representations by the issuer’s management, the procedures did not specifically address continuing monitoring of identified red flags as part of the firm’s ongoing due diligence. FINRA found that Martino used text messaging applications on his personal cell phone to communicate with the company’s founder, CEO, and prospective investors regarding the offering. Those communications, which concerned the firm’s securities business, were not preserved by the firm. As a result, Martino caused his firm to fail to preserve required books and records.