South Florida Arbitration & Litigation Lawyer Blog
Selling Away and Outside Business Activity Fraud, Misrepresentation and Mismanagement FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
February, 2011:
Alonzo Levi Bethea (CRD #2184794, Registered Rep., Silver Spring, Maryland) submitted an Offer of Settlement in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the allegations, Bethea consented to the described sanction and to the entry of findings that he sold securities in the form of limited liability company membership interests totaling $534,644 in a company he formed, and failed to provide written notice to, or obtain approval from, any of his member firms before engaging in the private securities transactions involving his company. The findings stated that Bethea directed customers to partially liquidate variable annuities he had previously sold them so they could make investments in his company; after the liquidations, the proceeds were sent to a third-party individual retirement account (IRA) custodian for alternative, nontraditional investments. The findings also stated that Bethea failed to provide written notice to his firms of his operation of an investment club he formed outside the scope of his relationship with his firms. The purpose of the club was to pool investor funds to make securities investments for which the members would receive returns in proportion to the amount of their original investment. The findings also included that Bethea opened a bank account for the investment club over which he had signatory authority and controlled the account. The address for the investment club and for its bank account was Bethea’s home address. Bethea also opened an account for the investment club at his firm and was the assigned representative. Bethea recommended and purchased mutual funds totaling approximately $4,500 for the club through the account for which he received commissions.
FINRA found that Bethea transferred approximately $477,460 from his company and from the investment club bank accounts to his personal bank accounts, where customer funds were commingled with his personal funds, without their authorization or consent. After customers’ funds were deposited in Bethea’s personal accounts, he converted at least $93,950 to his own use, making payments on his own credit card account and paying other personal debts. Bethea also misused company and investment club funds by making payments on loans secured by mortgages on a relative’s property and on loans persons who were not members of the company or the investment club owed. FINRA also found that one of Bethea’s customers sought to open an account at a third-party IRA custodian for the purpose of holding her investment in the company. Without the customer’s authorization or consent, Bethea signed her name to the new account form the custodian required. In addition, FINRA determined that Bethea supplied false information to his firms on annual compliance questionnaires, in an email and on an Outside Business Activity Details form regarding whether he was engaged in private securities transactions involving the company, his activities involving the company, whether he had signatory authority on any investment or checking accounts for the company, and if he had commingled his funds with a client’s, other than an immediate family member. (FINRA Case #2009020491401).