South Florida Arbitration & Litigation Lawyer Blog
FINRA Fraud and Mismanagement Attorney, Russell L. Forkey, Esq.
May, 2011
Brewer Financial Services, LLC (CRD® #132558, Chicago, Illinois), Adam GaryErickson (CRD #3081286, Registered Principal, Chicago, Illinois) and Steven John Brewer (CRD #2214515, Associated Person, Chicago, Illinois) submitted a Letter of Acceptance Waiver and Consent in which the firm was expelled from FINRA membership and Erickson and Brewer were barred from association with any FINRA member in any capacity. Without admitting or denying the findings, the firm, Erickson and Brewer consented to the described sanctions and to the entry of findings that the firm, acting through Erickson and Brewer, sold the private placement offerings of a company formed exclusively to acquire and provide growth to its parent company and a limited liability company for which Brewer was a director, without disclosing to the investors material facts that the parent company had defaulted on a $2.5 million loan, had reported an operating loss of $1,622,912 for one calendar year and an approximate operating loss of $4.5 million for another calendar year, and had defaulted on interest payments to note-holders. The findings stated that the firm, acting through Erickson and Brewer, continued to sell the limited liability company’s private placement offering to new investors, knowing that it had defaulted on its interest payments to existing investors and without disclosing that material fact to new investors. The findings also stated that the firm sold the private placement offerings to non-accredited investors without providing them with the financial statements required under securities and Exchange Commission (SEC) Rule 506. The findings also included that the failure to comply with the requirements of Rule 506 resulted in the loss of exemption from the registration requirements of Section 5 of the Securities Act of 1933; given no registration statement was in effect for the offerings and the registration exemption was ineffective, the firm sold these securities in contravention of Section 5 of the Securities Act of 1933. FINRA found that the firm, acting through Erickson, conducted inadequate due diligence related to its sale of the offerings in that it failed to ensure the issuers had retained a custodian to handle certain investors’ qualified funds prior to accepting investment of Individual Retirement Account (IRA) funds into the offerings. FINRA also found that the firm, acting through Erickson and Brewer, offered to sell and sold the company’s private placement offering by distributing to the public a private placement memorandum (PPM) containing unbalanced, unjustified, unwarranted or otherwise misleading statements; among other things, the PPM implied that the parent company was not experiencing financial difficulty and failed to disclose that it reported a significant loss one year. In addition, FINRA determined that investors in the company’s notes were not provided with financial statements for either the company or the parent company. Moreover, FINRA found that the PPM was misleading in that it failed to state clearly how offering proceeds would be used, lacked clarity regarding the relationship between the issuer and its affiliates, and failed to provide the basis for claims made regarding the performance expectations of the issuer or its affiliates. Furthermore, FINRA found that the firm failed to establish adequate written supervisory procedures related to its sales of private placement offerings, in that the firm’s procedures failed to require that financial statements be provided to investors when private placement offerings are sold to non-accredited investors, pursuant to SEC Rule 506. The findings also stated that the firm allowed Brewer to be actively engaged in managing the firm’s securities business without being registered as a principal and a representative although Brewer signed and submitted an attestation to FINRA stating he would not be actively engaged in the management of the firm’s securities business until he completed registration as a representative and principal. The findings also included that, among other things, Brewer reviewed and revised the firm’s recruitment brochure, approved offer letters to prospective firm registered representatives, dictated the structure of new representatives’ compensation, including the level of commissions and loan repayment terms, and instructed firm personnel to send private placement offering documents to prospective investors. FINRA found that the firm maintained the registrations for individuals who were not active in the firm’s investment banking or securities business or were no longer functioning as registered representatives. FINRA also found that the firm conducted a securities business on a number of days even though it had negative net capital on each of those dates. In addition, FINRA determined that the firm’s net capital deficiencies were caused by its failure to classify contributions from the parent company as liabilities after the firm returned the contributions to the parent company within a one-year period of having received them, and improperly treating its assets as allowable even though all of its assets had been encumbered as security for a loan agreement the parent company executed. Moreover, FINRA found that the firm had inaccurate general ledgers, trial balances and net capital computations, and filed inaccurate Financial and Operational Uniform Single (FOCUSTM) reports. (FINRA Case #2010023252701).
Contact Us
With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.