Articles Tagged with Mid Atlantic Capital

shutterstock_191231699The securities lawyers of Gana Weinstein LLP are investigating a customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker Craig Hayward (Hayward).  According to BrokerCheck records Hayward has been subject to at least six customer complaints.  The customer complaints against Hayward alleges securities law violations that including unsuitable investments and misrepresentations among other claims.   Many of the complaints involve direct participation products (DPPs) and private placements including oil and gas partnerships, non-traded real estate investment trusts (REITs), and other alternative investments.

Our firm has represented many clients in these types of products.  All of these investments come with high costs and historically have underperformed even safe benchmarks, like U.S. treasury bonds.  For example, products like oil and gas partnerships, REITs, and other alternative investments are only appropriate for a narrow band of investors under certain conditions due to the high costs, illiquidity, and huge redemption charges of the products, if they can be redeemed.  However, due to the high commissions brokers earn on these products they sell them to investors who cannot profit from them.  Further, investor often fail to understand that they have lost money until many years after agreeing to the investment.  In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.

Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client.  In order to make a suitable recommendation the broker must meet certain requirements.  First, there must be reasonable basis for the recommendation the product or security based upon the broker’s investigation and due diligence into the investment’s properties including its benefits, risks, tax consequences, and other relevant factors.  Second, the broker then must match the investment as being appropriate for the customer’s specific investment needs and objectives such as the client’s retirement status, long or short term goals, age, disability, income needs, or any other relevant factor.

shutterstock_160304408The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) have brought action (FINRA Here, SEC Here) against Timothy Dembski (Dembski) and Walter Grenda (Grenda) concerning allegations that they made false and misleading statements to their clients at Reliance Financial Group (Reliance) an investment advisory firm, in recommending and selling investments in a risky hedge fund called Prestige Wealth Management Fund, LP (Prestige Fund). Also mentioned as a manager of the fund was Scott Stephan (Stephan).

Dembski was a registered broker with FINRA starting in 1995. From October 2006 until March 2011, Dembski was registered with Wall Street Financial Group, Inc. (Wall Street). Thereafter, Dembski was registered with Mid Atlantic Capital Corporation (Mid Atlantic) until August 2013. In January 2011, Dembski co-founded and was the managing partner at Reliance Financial and also co-founded the Prestige Fund.

Grenda has been a registered broker with FINRA since 1981. From October 2006 until March 2011, Grenda was registered with Wall Street. Thereafter, Grenda was registered with Mid Atlantic until July 2013.

The Financial Industry Regulatory Authority (FINRA) recently sanctioned broker Michael James Blake (Blake) over allegations that Blake engaged in the unlawful sale of securities including, upon information and belief, securities linked to Longest Drive, LLC and Grace Communities, LLC.  According to FINRA, Blake participated in private securities transactions involving the investment of more than $3.2 million by approximately 28 investors in 3 investment contracts without providing prior written notice to his firms of his proposed roles in the transactions.  FINRA imposed a $10,000 fine and banned Blake from association with any broker-dealer for one year.

The allegations against Blake are consistent with a “selling away” violation.  Selling away occurs when a securities broker solicits securities that were not approved by the broker’s affiliated firm.  Selling away is a violation of FINRA Rule 3040. The most common securities sold away from brokerage firms involve private placements and promissory notes.  Investors are often completed unaware that the broker’s sales activity is improper.  In addition, the investor does not learn that the broker’s activities were wrongful until the investment scheme is publicized, the broker is sanctioned, or the broker stops returning client calls.

FINRA’s order states that between approximately February 2006 and June 2007, Blake recommended to customers to invest $3,200,000 in real estate properties being developed by entity “GC”, which is believed to stand for Grace Communities.  The invested funds were provided by 28 investors.  According to FINRA, 6 persons invested $250,000 in Development 1 between August and November 2006, 3 persons invested $200,000 in Development 2 in October and November 2006, and 23 persons invested approximately $2,755,000 in Development 3 between February 2006 and June 2008.  According to FINRA, as of September 9, 2013, investors in Blake’s real estate investments have not received a return of their principal or any interest or other payments.

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