Sale of Unregistered Securities, Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney, Russell L. Forkey, Esq.
Patrick Francis Harte Jr. (CRD #1865650, Registered Principal, Plano, Texas) was barred from association with any FINRA member in any capacity. The sanction was based on findings that Harte participated in the sale of unregistered securities, in violation of Section 5 of the Securities Act of 1933. The findings stated that Harte and a registered representative at his member firm sold millions of shares of a thinly traded penny stock, resulting in proceeds exceeding $9.3 million for firm customers; the total commissions generated were $481,398. The findings also stated that Harte failed to conduct any due diligence prior to the stock sales; the circumstances surrounding the stock and the firm’s customers presented numerous red flags of a possible unlawful stock distribution. The findings also included that Harte did not determine if a registration statement was in effect with respect to the shares or if there was an applicable exemption; Harte relied on transfer agents and clearing firms to determine the tradability of the stock. FINRA found that Harte failed to undertake adequate efforts to ensure that the registered representative ascertained the information necessary to determine whether the customers’ unregistered shares could be sold in compliance with Section 5 of the Securities Act of 1933; Harte did not consider the determination of the free-trading status of shares to be within his supervisory responsibilities. FINRA also found that Harte failed to follow up on red flags; he was on notice of the inconsistencies between customers’ trading experience and activity in their firm accounts but took no action. In addition, FINRA determined that Harte received customer emails which evidenced a greater level of market sophistication than reflected in their account forms but failed to investigate these discrepancies. (FINRA Case #2006004666601).