Articles Tagged with Private Placement

shutterstock_179465345The securities lawyers of Gana Weinstein LLP are investigating customer complaints filed with The Financial Industry Regulatory Authority (FINRA) against broker William Baumner (Baumner).  According to BrokerCheck records Baumner has been subject to at least seven customer complaints and five judgements or liens.  The customer complaints against Baumner allege securities law violations that including unsuitable investments, breach of fiduciary duty, and misrepresentations among other claims.   According to the disclosures, many of the complaints involve private companies, private placements, penny stocks, and one complaint mentions a recommendation for CTX Virtual.

In December 2015 a customer filed a complaint alleging $100,000 in damage stemming from misrepresentations for a stock between February 2014 and January 2016.  The complaint has been denied.  Baumner has disclosed several large tax liens including a $5,825 lien in January 2015.  Substantial judgements and liens on a broker’s record can reveal a financial incentive for the broker to recommend high commission products or services.  A broker’s inability to handle their personal finances has also been found to be relevant in helping investors determine if they should allow the broker to handle their finances.

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_177792281The securities fraud lawyers of Gana Weinstein LLP are investigating a regulatory complaint (Disciplinary No. 2015043159501) filed with The Financial Industry Regulatory Authority’s (FINRA) against broker Kevin Murphy (Murphy). FINRA alleged that in or about November 2013, Murphy sold $1.2 million of shares and warrants in a private placement to four individuals and one limited partnership without his firm’s knowledge.

According to FINRA, in August and September, 2013, Murphy made a $1.2 million investment in a private placement for which TGP Securities, Inc. (TGP), Murphy’s brokerage firm, was providing brokerage services. In return for his investment, FINRA found that Murphy received two stock certificates totaling 600,000 Series F shares and two warrants exercisable for 300,000 common shares. On November 29, 2013, FINRA alleged that Murphy resold the Series F shares and the warrants to four individuals and one limited partnership for $1.2 million without the permission of TGP.

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.

shutterstock_186471755The investment lawyers of Gana Weinstein LLP are investigating customer complaints against broker Robert Hinz Jr. (Hinz). There are at least 7 customer complaints against Hinz. The customer complaints against Hinz allege a number of securities law violations including that the broker made unsuitable investments, misrepresentations, negligence, fraud, breach of fiduciary duty, and unauthorized trading among other claims. One of the claims involves the purchase of oil and gas private placement Reef Oil & Gas Income and Development Fund III.

The most recent complaint was filed in February 2013 and alleged fraud and negligence from activities that occurred from July 2007 until December 2009 and resulted in $240,000 in damages. Another complaint filed in January 2012 alleged dissatisfied performance with respect to investments and asked for $34,680. The case was closed with no action.

Hinz entered the securities industry in January 1982. Since August 1994, Hinz has been registered with VSR Financial Services, Inc. out of the firm’s Seattle, Washington office location.

shutterstock_52426963The Financial Industry Regulatory Authority (FINRA) brought and enforcement action against broker Donald Levin (Levin) (FINRA No. 2014040335101) alleging that between December and April 2014, Levin hosted a weekly radio show and during that show he made statements that were unbalanced, promissory, misleading and lacked reasonable basis in violation of the FINRA Rules. According to Levin’s BrokerCheck records Levin also has a long and troubled history of customer complaints, regulatory actions, and employment separations. In September 2012, FINRA accepted an settlement with Levin where he accepted the entry of findings that Levin made unwarranted and misleading statements on his weekly radio show. At that time Levin agreed to accept a five month suspension and a $30.000 fine. Going back to December 2008, the Securities and Exchange Commission (SEC) issued a cease and desist order to Levin fining him $25,000 for his violations in the offering and selling mutual fund class A shares to retail customers without adequate disclosure of material information about the availability of breakpoint discounts for which customers could have qualified.

In addition to the regulatory actions, Levin has approximately 15 customer complaints filed against him dating back to 1999. The customer complaints allege a host of securities laws violations concerning a variety of investment products. Some of the more recent complaints allege that Levin failed to conduct due diligence in private placement securities some of which include oil & gas private placements. In another customer complaint, the customer alleged that he was induced to take out a home equity loan in order to purchase securities and suffered losses of $440,000 as a result. Other investor complaints involve alternative investments and mutual funds.

Levin first became associated with a FINRA member in 1980. From 2004 until June 2012, Levin was a registered representative of Milkie/Ferguson Investments, Inc. Thereafter, from June 2012, until September 2012, Levin was associated with Berthel, Fisher & Company Financial Services, Inc. Finally, from January 2014, unitl August 2014, Levin was a registered representative of Titan Securities.

shutterstock_176351714The Financial Industry Regulatory Authority (FINRA) recently filed a complaint against ARI Financial Services, Inc. (ARI) and William Candler (Candler), the firm’s President and former Chief Compliance Officer (CCO) alleging that that he facilitated at least ten private placement offerings from September 1, 2009, to December 31, 2012. The complaint found that the respondents failed to implement reasonable supervisory procedures in connection with the sales of the private placements.

ARI has been a FINRA member firm since 2005 and derives most of its revenue as a wholesaler of private placements that it marketed to retail broker-dealers who then sold those interests to retail investors. ARI’s main office was located in Kansas and during certain times had registered up to five branch offices and over 30 registered representatives located in six different states. ARI is currently owned by Candler and two other individuals. Candler is ARI’s majority owner.

Candler entered the securities industry in 1996. From March 2011, until November 2012, Candler was associated with Connor Capital Investments, LLC. Since April 2014, in addition to ARI, Candler is associated with JCC Advisors, LLC.

shutterstock_154554782The Financial Industry Regulatory Authority (FINRA) sanctioned broker Financial America Securities, Inc. (Financial America) and John Rukenbrod (Rukenbrod) concerning allegations that between August 2009, and May 2011, the firm, acting through Rukenbrod, failed to adequately supervise the business being conducted out of one of the firm’s branch offices. FINRA found that the firm: 1) failed to conduct any inspection of the branch office; 2) failed to review any incoming or outgoing e-mails of the three registered representatives operating out of the branch; 3) failed to adequately supervise private securities transactions engaged in by two of the registered representatives; 4) failed to ensure that all electronic communications were captured and retained; 5) failed to create and maintain a written report of inspections of the branch as required; and 6) failed to ensure that the firm’s securities business was supervised by a licensed securities principal.

Financial America has been a FINRA firm since 1970, employs 31 registered representatives, has two branches, and engages in a general securities business. Rukenbrod entered the securities industry in 1966 and cofounded Financial America in 1970.

FINRA alleged that two of Financial America’s representatives initialed “PC” and “CM” engaged in a securities business primarily in the sale of private placement offerings and Rukenbrod was the firm’s designated supervisor. In April 2010, FINRA found that Rukenbrod attended an investor presentation at PC and CM’s branch for a private placement offering. Rukenbrod turned down the offering and stated that the firm would not participate in the offering until certain due diligence procedures were agreed upon.

There are many instances where an individual or corporation receives shares of stock by private placement, as opposed to purchasing the stock from the open market. Often times, the stock certificates received by private placement are stamped with a legend outlining applicable restrictions on the resale of that stock. This legend establishes the regulatory limitations surrounding the corporation or individual’s ability to resell the securities. This legend must be removed before one can legally effectuate the resale of the stock. Generally, the securities must either be registered with the Securities and Exchange Commission (SEC) or sold pursuant to an exemption from registration. Only after the securities are registered or are shown to be exempt, may a transfer agent remove the restrictive legend—and only upon the removal of the restrictive legend may the underlying securities sold.

In the United States, the resale exemption most often relied on is Rule 144 of the Unites States Securities Act of 1933. Rule 144 allows the resale of restricted stock to be sold to the public without a registration statement being filed if a number of conditions have been met. These conditions vary depending on (1) whether the issuing company is a reporting or non-reporting issuer; (2) whether the holder is arms-length, and thus considered a “Non-Affiliate”; or a director, officer or significant shareholder, and thus considered an “Affiliate”; and (3) the length of time the securities have been held.

Removing the restrictive legend involves extensive communications with the transfer agent of the issuer of the securities being held and the broker dealer where the stockholder seeks to deposit those securities. The certificate holder will need to provide a number of documents including, but not limited to, a seller’s representation letter, the original stock certificates, a medallion signature guarantee, a legal opinion letter, and in some cases, a Form 144 for the proposed transaction.

Stephen Douglas Pizzuti (Puttuti) and David Walton Matthews, Jr. (Matthews) were recently suspended for three months by the Financial Industry Regulatory Authority (FINRA) over allegations that Pizzuti failed to adequately inquire into Richard’s Pizzuti (Richard) and Daniel Voccia’s (Voccia) outside business activities and involvement in private securities transactions despite his knowledge of their activities.  To that end, Pizzuti failed to follow up on “red flags” regarding Richard’s and Voccia’s investment activities.  In addition, FINRA also found that Matthews, Merrimac’s Chief Compliance Officer, also failed to supervise Richard and Voccia investment activities.

Pizzuti controls Merrimac Corporate Securities, Inc. (Merrimac) and was the firm’s Chef Executive Officer during the relevant period.  Pizzuti, as the managing principal of Merrimac and the firm’s CEO, had overall responsibility for the Merrimac’s compliance policies.  Matthews became President of Merrimac in early 2004.  Matthews was also the Merrimac’s Chief Compliance Officer until mid-2008 but thereafter and remained the Merrimac’s President. Matthews reports directly to Pizzuti.

FINRA found that from at least 2006 to April 2009, Pizzuti failed to reasonably supervise the outside business activities and private securities transactions of Richard and Voccia.  Both Richard and Voccia were registered representatives at Merrimac.

Investors continue to suffer substantial losses from recommended investments in the Behringer Harvard REIT Funds.  The Behringer Harvard REIT Funds including the Behringer Harvard Mid-Term Value Enhancement I, Behringer Harvard Short-Term Opportunity Fund I, and the Behringer Harvard REIT I  and II (Behringer REITs) have sometimes been sold to investors as safe, stable, income producing real estate investment trusts.  While the Behringer REITs were initially sold to investors for $10 per share, currently some of these REITs trade as low as approximately $2.00 on the secondary market.  Worse still, some of the funds no longer pay a dividend or investors receive only a fraction of what their advisor initially told their clients they could expect the investment to yield.

The Behringer REITs are speculative securities, non-traded, and offered only through a Regulation D private placement.  Unlike traditional registered mutual funds or publicly traded REITs that have a published daily Net Asset Value (NAV) and trade on a national stock exchange, the Behringer REITs raised money through private placement offerings and are illiquid securities.  In recent years, increased volatility in stocks has led to an increasing number of advisor recommendations to invest in non-traded REITs as a way to invest in a stable income producing investment.  Some non-traded REITs have even claimed to offer stable returns while the real estate market has undergone extreme volatility.  Brokers are often motivated to sell non-traded REITs to clients due to the large commissions that can be earned in the selling the Behringer REITs.

Investors are now bringing claims against the brokerage firms that sold them the Behringer REITs alleging that their advisor failed to disclose important risks of the REITs.  Some common risks that customers have alleged were not disclosed include failing to explain that Behringer REITs may not be liquidated for up to 8 to 12 years or more, that the redemption policy can be eliminated at any time, and that investor returns may not come from funds generated through operations but can include a return of investor capital.