Due Diligence - Russell L. Forkey

Harold Connell – Private Placement Memorandums – Undisclosed Self-Dealing – Unregistered Regulation D Offerings – Boca Raton, Florida FINRA Arbitration Attorney

Russell L. Forkey — Mon, 03 Sep 2018 14:15:17 GMT

Harold Connell – Private Placement Memorandums – Undisclosed Self-Offerings – Unregistered Regulation D Offerings – Fraud, Deceit and Misrepresentation – Boca Raton, Florida Finra Arbitration Attorney

Harold Lee Connell (CRD #1482623, Pinecrest, Florida)

Recently, the Financial Industry Regulatory Authority announced that Harold Lee Connell entered into an Acceptance, Waiver and Consent which barred Connell from association with any FINRA member in all capacities. Without admitting or denying the findings, Connell consented to the sanction and to the entry of findings that he willfully violated Section 10(b) of the Exchange Act and Rule 10b-5, and FINRA Rules 2010 and 2020 by participating in the sale of three unregistered Regulation D offerings through misrepresentations and omissions.

The findings stated that Connell and others at his member firm raised over $4.5 million from individual investors in connection with the sale of the three unregistered Regulation D offerings. The private placement memorandums (PPMs) for the three offerings provided that investors’ funds would be used to make investments in a variety of companies. However, the first offering was invested 85 percent in one penny stock company. The other two offerings were primarily undisclosed self-offerings. Investors’ funds were transferred to the firm’s holding company, and from there, to the firm. The third offering’s PPM did not disclose that the companies that received their funds, the firm and its holding company, were deeply in debt. The third offering’s PPM also did not disclose that investor funds would be used to pay non-firm expenses and money owed to prior offering investors. None of the investors recouped any of their principal investments. The findings also stated that Connell sold the offerings without a reasonable basis to believe that they were suitable for any investor. The first offering was not suitable for any investors because appropriate due diligence was not performed on the product. The second and third offerings were not suitable for any investors because they raised money for the firm’s holding company and the firm. Also, contrary to the representations in the second and third offerings’ PPMs, the offerings’ funds were not invested in a diverse basket of investments.

Connell, as the chief executive officer (CEO), president, principal supervisor and owner of the firm should not have permitted the marketing or sale of these products. The findings also included that Connell failed to reasonably supervise two registered representatives and an associated person involved in the sales of these products and the management of the funds obtained from the customers. Connell was required to investigate red flags and act upon the results of such an investigation. The two representatives had extensive contacts with their customers in Spanish. In fact, they and most of their investors were native Spanish speakers. Connell did not speak or understand Spanish. Nevertheless, Connell did not obtain translations of correspondence between the firm representatives and the customers, nor did he participate, with a translator, in any discussions with the Spanish-speaking customers at the point of sale. The associated person was not licensed by FINRA. Despite the associated person’s dual role as co-manager of the first offering and manager of the other two on the one hand, and as an associated person of the firm on the other hand, Connell did not take effective action to ensure that he did not engage in activities requiring registration. In addition, Connell allowed one of the representatives to hold himself out as a director of the firm’s Latin American business and to supervise registered representatives when Connell knew that he did not have a General Securities Principal license. (FINRA Case #2016051493702).

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At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Underwriter Due Diligence – Fact or Fiction – Boca Raton, Florida Fraudulent Underwriting Attorney

Russell L. Forkey — Mon, 30 Mar 2015 13:48:29 GMT

Underwriter Due Diligence – Fact or Fiction – Boca Raton, Florida Fraudulent Underwriting Attorney

Securities and Exchange Commission v. Macquarie Capital (USA) Inc. et al., Civil Action No. 15-CV-02304

SEC Charges New York-Based Brokerage Firm with Faulty Underwriting of Public Offering by China-Based Company

The Securities and Exchange Commission recently announced charges against a New York-based brokerage firm responsible for underwriting a public offering despite obtaining a due diligence report indicating that the China-based company’s offering materials contained false information.

Macquarie Capital (USA) Inc., a wholly owned subsidiary of global financial services firm Macquarie Group Limited, has agreed to settle the SEC’s charges by paying $15 million and separately covering the costs of setting up a Fair Fund to compensate investors who suffered losses after purchasing shares in the public offering by Puda Coal. The SEC previously charged the Puda Coal executives behind the offering fraud at the company, which is no longer in business.

The SEC also charged former Macquarie Capital managing director Aaron Black and former investment banker William Fang for failing to exercise appropriate care in their due diligence review. Black agreed to pay $212,711 and Fang agreed to pay $35,000 to settle the charges.

According to the SEC’s complaint filed in federal court in Manhattan, Macquarie Capital was the lead underwriter on a secondary public stock offering in 2010 by Puda Coal, which traded on the New York Stock Exchange at the time and purported to own a coal company in the Peopleâ€^TMs Republic of China (PRC). In the offering documents, Puda Coal falsely told investors that it held a 90-percent ownership stake in the Chinese coal company. Macquarie Capital repeated those statements in its marketing materials for the offering despite obtaining a report from Kroll Associates showing that Puda Coal did not own any part of the coal company. According to corporate registry filings in the PRC that Kroll accessed in its due diligence review, Puda Coal’s chairman had transferred ownership of the coal company to himself and then sold nearly half of his interest to the largest state-owned investment firm in the PRC. As a result, Puda Coal no longer had any ownership stake or source of revenue.

According to the SEC’s complaint, Kroll provided its report to Fang, who read it but failed to act on the information revealing that Puda Coal no longer owned the coal company. Instead, Fang circulated the report to other members of the Puda Coal deal team and stated in the e-mail that “no red flags were identified.” Black, who served as one of the transaction directors on the Puda Coal deal, received the report from Fang and read portions stating that Puda Coal’s chairman owned 50 percent of the coal company of which Puda Coal was claiming to own 90 percent. Black likewise failed to act on the information.

The SEC alleges that Macquarie Capital made a net profit of $4.17 million as lead underwriter on the Puda Coal offering, which sold stock to investors at a price of $12 per share. When reports about Puda Coal’s false claim appeared on the Internet based on the same PRC filings that Kroll Associates accessed for its report, Puda Coal’s stock price plunged as low as pennies per share.

The SEC’s complaint charges Macquarie Capital, Black, and Fang with violating Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. They agreed to settle the charges and accept permanent injunctions without admitting or denying the allegations. The settlement is subject to court approval. In addition to the monetary penalties, Black has agreed to be barred from supervisory positions in the securities industry and Fang has agreed to be barred from the securities industry, both for at least five years.

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