Private Securities Transactions - Russell L. Forkey

Broker/Dealer Requirements Relating to a Contingency or Best Efforts Offering – South Florida Securities Arbitration and Litigation Attorney

Russell L. Forkey — Sat, 26 Feb 2022 16:32:48 GMT

CONTINGENCY OR BEST EFFORTS OFFERING:

Securities and Exchange Act Rules 10-b9 and 15c2-4 contain requirements that must be satisfied in “Contingency” or “Best Efforts” offerings. FINRA (the Financial Industry Regulatory Authority) has provided guidance to broker/dealers regarding the requirements of these rules and to remind broker-dealers of their responsibility to have procedures reasonably designed to achieve compliance with these rules.

Broker-dealers that participate in best efforts public and private securities offerings that have a contingency (i.e., an underlying condition or qualification that must take place by a specified date prior to the issuer taking possession of the offering proceeds) must safeguard investors’ funds they receive until the contingency is satisfied. If the contingency is not met, broker-dealers must ensure that investors’ funds are promptly refunded. There are various contingencies that might need to be satisfied in addition to meeting a subscription amount.

Best Efforts Contingency Offerings

In a best efforts offering, a broker-dealer does not commit to purchase any securities from the issuer or guarantee that the issuer will receive any amount of money from the offering (This is in contrast to a firm commitment). Furthermore, a best efforts offering subject to satisfaction of an underlying condition is deemed to be a “contingency offering.” The most common contingency offerings reviewed by FINRA are either “all-or-none” or “part-or-none” offerings that require all or a certain amount of the securities to be sold for the offering to close. Under Securities Exchange Act Rule 10b-9, a best efforts offering subject to either an “all-or-none” or “part-or-none” contingency must provide for the prompt return of investor funds in the event the requisite contingency fails to be met by a specific date.

Broker-Dealer Responsibilities in a Best Efforts Contingency Offering.

As discussed in Regulatory Notice 10-22, a broker-dealer that participates in an offering and recommends a security must, among other requirements, conduct a reasonable investigation of the security and the issuer’s representations about it. If the security is offered as part of a contingency offering, the broker-dealer’s reasonable investigation must include a review of the terms of the contingency, including any agreement and disclosure by the issuer regarding the contingency.

III. Requirements Concerning Manner of Handling Investor Funds

Securities Exchange Act Rule 15c2-4 requires that upon receiving money or other consideration from an investor in a contingency offering, a broker-dealer must promptly:

deposit those funds into “a separate bank account” for which the broker-dealer is the account holder and is designated as agent or trustee “for the persons who have the beneficial interests therein”; or
transmit those funds to a bank that has agreed in writing to act as the escrow agent for the offering.

The manner in which a broker-dealer must handle investor funds generally will be determined by two factors. First, pursuant to SEA Rule 15c3-1, only a broker-dealer that maintains at least $250,000 in net capital is allowed to carry customer accounts and receive or hold funds or securities for those persons. Therefore, while not a requirement of SEA Rule 15c2-4, a broker-dealer that maintains less than 250,000 in net capital and deposits investors’ funds into a separate bank account rather than transmitting those funds to an independent bank escrow agent would violate SEA Rule 15c3-1. Second, when a participating broker-dealer is an affiliate of the issuer, investors’ funds must be transmitted to an independent bank escrow agent.

Escrow Agreements

In contingent offerings that require an escrow agent, the escrow agreement must be executed with a bank that is unaffiliated with the broker-dealer and the issuer. The escrow account should be established before the broker-dealer receives any investor funds. The escrow account may not be controlled by the issuer, the broker-dealer or an attorney. As a general matter, the escrow agent must be a financial institution that meets the definition of a “bank” under SEA Section 3(a)(6), although the SEC staff has provided no-action relief to permit certain other entities to act as escrow agents.

Prompt Transmittal of Funds

SEA Rule 15c2-4(b) requires that a broker-dealer promptly transmit funds to either an escrow agent or a separate bank account. SEC staff has interpreted “promptly” to mean by noon of the next business day. Failure to promptly transmit funds to either the escrow agent or a separate bank account has resulted in sanctions. However, in certain offerings, such as direct participation programs that require suitability determinations by the issuer, the SEC staff has provided procedural guidance under which a broker-dealer can still comply with the “promptly” component of SEA Rule 15c2-4 even if the funds are not transmitted by noon the next business day after they are received.

A broker-dealer’s responsibility does not end when it promptly transmits investor funds to an escrow agent or separate bank account. A broker-dealer must also promptly refund investors’ funds if the contingency is not met.

Disbursal to the Issuer

Broker-dealers must segregate investor funds they receive at least until the contingency is met.

It is important to keep in mind that the private security offerings that are not offered through a broker/dealer are subject to many of the core requirements discussed in this post.

Please keep in mind that the above summary is being provided for educational purposes only. It is not designed to be complete in all material respects. If you have any question relative to the contents of this post, you should contact a qualified professional.

Peter David Holler – Selling Away – Promissory Notes – South Florida FINRA Arbitration Attorney

Russell L. Forkey — Sun, 12 Aug 2018 17:45:21 GMT

Peter David Holler (CRD #838897, Bristol, Tennessee):

Recently, the Financial Industry Regulatory Authority announced that Peter David Holler executed an Acceptance, Waiver and Consent in which Holler was assessed a deferred fine of $10,000, suspended from association with any FINRA member in all capacities for two years and ordered to pay $49,790, plus interest, in deferred disgorgement of commissions received.

Without admitting or denying the findings, Holler consented to the sanctions and to the entry of findings that he engaged in a series of private securities transactions without providing notice to, or obtaining approval from, his member firm prior to participating in these private securities transactions. The findings stated that Holler solicited investors to purchase promissory notes in a purported real-estate investment fund. Ultimately, Holler sold approximately $1.39 million in the promissory notes to individuals, nine of whom were the firm customers. Holler received $49,790 in commission in connection with these transactions. Holler also purchased approximately $75,100 of the promissory notes for himself.

The suspension is in effect from May 21, 2018, through May 20, 2020. (FINRA Case #2017055239801).

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and 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.

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.

Mid Atlantic Capital Corporation – Private Securities Transactions – West Palm Beach, Florida FINRA Arbitration Attorney

Russell L. Forkey — Sun, 18 Jun 2017 15:58:09 GMT

Mid Atlantic Capital Corporation – Private Securities Transactions – West Palm Beach, Florida FINRA Arbitration Attorney:

Mid Atlantic Capital Corporation (CRD #10674, Pittsburgh, Pennsylvania) recently submitted an AWC in which the firm was censured and fined $100,000 by FINRA. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it failed to adequately supervise the private securities transactions of two registered representatives.

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Garyn Ian Angel – Boca Raton, Florida FINRA Prohibited Private Securities Transaction

Russell L. Forkey — Sun, 23 Aug 2015 22:33:26 GMT

The Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory authority assigned the responsibility, by the Securities and Exchange Commission, to license, regulate and discipline securities broker/dealers and their employees, including account executives. In the event that FINRA elects to institute an enforcement action, firms and licensed individuals have the responsibility to reflect such action on their U-4 and/or U-5 filings, which can be viewed on the FINRA website under the broker-check section of the site or by viewing the monthly disciplinary information also provided on the FINRA site.

The monthly disciplinary information is referenced on the FINRA site generally in alphabetical order. This post relates to the following company or individuals. If the reader would like to review the entire FINRA release or the broker-check information concerning this matter, you can follow these highlighted links:

August 2015 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Garyn Ian Angel (CRD #3172630, Port Richey, Florida) submitted an AWC in which he was assessed a deferred fine of $7,500 and suspended from association with any FINRA member in any capacity for four months. Without admitting or denying the findings, Angel consented to the sanctions and to the entry of findings that he participated in two private securities transactions without providing prior written notice to his member firms. The findings stated that Angel settled a customer’s complaint regarding a customer’s investment without notifying his present or his former firms.

The suspension is in effect from June 15, 2015, through October 14, 2015. (FINRA Case #2014040036901).

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Public Company Going Private – South Florida Securities and Investment Attorney

Russell L. Forkey — Sat, 02 May 2015 16:00:51 GMT

Public Company Going Private – South Florida Securities and Investment Attorney

Public Company Going Private:

A publicly held company generally means a company that has a class of securities that is registered with the Securities and Exchange Commission because those securities are widely held or traded on a national securities exchange. When a public company is eligible to deregister a class of its equity securities, either because those securities are no longer widely held or because they are delisted from an exchange, this is known as “going private.”

A publicly held company may deregister its equity securities when they are held by less than 300 shareholders of record or less than 500 shareholders of record, where the company does not have significant assets. Depending on the facts and circumstances, the company may no longer be required to file periodic reports with the SEC once the number of shareholders of record drops below the above thresholds.

A number of kinds of transactions can result in a company going private, including:
Another company or individual makes a tender offer to buy all or most of the company’s publicly held shares;
The company merges with or sells all or substantially all of the company’s assets to another company; or
The company declares a reverse stock split that reduces the number of shareholders of record. In a reverse stock split, the company typically gives shareholders a single new share in exchange for a block-10, 100, or even 1,000 shares-of the old shares. If a shareholder does not have a sufficient number of old shares to exchange for new shares, the company will usually pay the shareholder cash instead of issuing a new share, thus eliminating some smaller shareholders of record and reducing the total number of shareholders.

If an affiliate of the company or the company itself is engaged in one of these kinds of transactions or series of transactions that will cause a class of equity securities to become eligible for deregistration or delisting, Rule 13e-3 of the Securities Exchange Act of 1934 and Schedule 13E-3 may apply. When Rule 13e-3 applies, the company is said to be “going private” under SEC rules. While SEC rules don’t prevent companies from going private, they do require companies to provide specific information to shareholders about the transaction that caused the company to go private. In addition to a Schedule 13E-3, the company and/or the affiliates engaged in the transaction also may have to file a proxy or a tender offer statement with the SEC.

When one of the kinds of transactions listed above involving a company or its affiliates results in a company’s publicly held securities becoming delisted from a national securities exchange or an inter-dealer quotation system of any national securities association, Rule 13e-3 and Schedule 13E-3 may also apply.

Schedule 13E-3 requires a discussion of the purposes of the transaction, any alternatives that the company considered, and whether the transaction is fair to unaffiliated shareholders. The Schedule also must disclose whether and why any of its directors disagreed with the transaction or abstained from voting on the transaction and whether a majority of directors who are not company employees approved the transaction.

Going private transactions require shareholders to make difficult decisions. To protect shareholders, some states have adopted corporate takeover statutes that provide shareholders with dissenter’s rights. These statutes provide shareholders the opportunity to sell their shares on the terms offered, to challenge the transaction in court, or to hold on to the shares. Once the transaction is concluded, remaining shareholders may find it very difficult to sell their retained shares because of a limited trading market.

Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If you have any questions concerning the contents of this post, please consult a qualified expert.

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Ricky Eugene Bell – Boca Raton, Florida Unapproved Private Security and Unauthorized Loan Transaction FINRA Arbitration Attorney

Russell L. Forkey — Thu, 01 Jan 2015 23:19:37 GMT

Ricky Eugene Bell – Boca Raton, Florida Unapproved Private Security and Unauthorized Loan Transaction FINRA Arbitration Attorney:

December 2014 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Ricky Eugene Bell (CRD #2065556, Fayetteville, North Carolina) was barred from association with any FINRA member in any capacity and ordered to pay a total of $19,650, plus interest, in restitution to customers. The sanctions were based on findings that Bell engaged in private securities transactions through a lending program without providing notice to, or receiving approval from, his member firm. The findings stated that Bell solicited and received personal loans totaling $19,650 from customers without requesting or receiving his firm’s approval to solicit or receive the loans. The firm notified Bell of its policies and procedures against borrowing from customers. The findings also stated that Bell failed to respond to FINRA requests for information and documents and to provide on-the-record testimony. (FINRA Case #2013039439301).

Accounting Fraud and Misrepresentation – South Florida Accounting Fraud, Misrepresentation and Negligence Litigation Attorney

Russell L. Forkey — Sun, 24 Aug 2014 13:57:43 GMT

South Florida, including Boca Raton, Delray Beach, Lantana, West Palm Beach and Fort Lauderdale, Florida Accounting Fraud, Misrepresentation and Negligence Litigation Attorney:

California-Based Telecommunications Equipment Firm and Two Former Executives Charged in Revenue Recognition Scheme

The Securities and Exchange Commission recently announced charges against a Newport Beach, Calif.-based telecommunications equipment company and two former executives accused of improperly recognizing as revenue more than a million dollars’ worth of inventory that was shipped to a Florida warehouse but not actually sold.

They’re also accused of defrauding an investor from whom they secured a $2 million loan for the company based on misstatements and omissions associated with the inventory shipments.

The SEC’s Enforcement Division alleges that AirTouch Communications Inc., former president and CEO Hideyuki Kanakubo, and former CFO Jerome Kaiser orchestrated a fraudulent revenue recognition scheme that violated Generally Accepted Accounting Principles (GAAP), which establish that revenue cannot be recognized unless it is “realized or realizable” and “earned.” When AirTouch reported net revenues of a little more than $1.03 million in its quarterly report for the third quarter of 2012, it included approximately $1.24 million in inventory that had been shipped to a company in Florida that agreed to warehouse AirTouch’s products in anticipation of future sales. AirTouch’s revenue recognition was improper because the Florida company had not purchased the inventory, and AirTouch had not sold the inventory to any of its customers. AirTouch would have had zero revenue to report for the quarter if it had not recorded the shipments as purported revenue from the Florida company.

According to the SEC’s order instituting an administrative proceeding, AirTouch develops and sells telecommunications equipment, including a product called the U250 SmartLinx that was designed in early 2012 for sale to Mexico’s largest provider of landline telephone services. Later that year, AirTouch contacted the Florida company about the possibility of it warehousing U250 SmartLinx units for potential future sale to the Mexican entity or other AirTouch customers. During contract negotiations for the warehousing arrangement, the CEO of the Florida company told Kanakubo that it would not buy the product from AirTouch, but rather warehouse the U250 SmartLinx inventory and provide logistics for eventual delivery to the Mexican entity or other AirTouch customers who purchased the product. AirTouch shipped approximately $1.24 million of inventory to the Florida company. Despite not receiving any payment from the Florida company or any commitment from the Mexican entity or any other customer that it would actually buy product, Kanakubo and Kaiser reported the shipped inventory as revenue on AirTouch’s Form 10-Q. They also signed certifications falsely attesting to the accuracy of the company’s financial results.

The SEC’s Enforcement Division further alleges that Kanakubo and Kaiser made false and misleading statements and omissions to an investor they solicited for a $2 million short-term bridge loan to the company in exchange for a promissory note and a warrant to purchase common stock. Among other things, Kanakubo falsely told the investor via e-mail that the inventory to be shipped by AirTouch to the Florida company pertained to an existing purchase order from the Mexican entity, and Kaiser did not disclose the existence of the agreement wherein the Florida company agreed merely to warehouse the inventory and provide associated fulfillment and logistics services. On Oct. 17, 2012, AirTouch received the loan of $2 million from the investor, and two days later Kanakubo approved a $15,000 bonus payment to Kaiser for his work on raising capital. The same day, Kanakubo authorized a $15,000 payment to himself in connection with unused vacation time.

According to the SEC’s order, Kanakubo, who lives in Irvine, Calif., and Kaiser, who lives in Chowchilla, Calif., withheld key information about the inventory shipments to the Florida entity from AirTouch’s board of directors and controller as well as its outside independent accountant.

The SEC’s order alleges that AirTouch, Kanakubo, and Kaiser violated the antifraud provisions of the federal securities laws, and asserts that Kaiser’s violations constituted willful conduct.

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At the Fort Lauderdale 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.

Florida’s Requlation D and Rule 506 Offering Requirements – Boca Raton, West Palm Beach and Fort Lauderdale, Florida Securities Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Fri, 01 Aug 2014 10:42:33 GMT

Florida’s Regulation D and Rule 506 Offering Requirements – Boca Raton, Fort Lauderdale and West Palm Beach, Florida Securities Fraud and Misrepresentation FINRA Arbitration, Litigation and Elder Abuse Attorney:

What are Florida’s Regulation D and Rule 506 Offering requirements?

Regulation D and Rule 504 Public Offerings:

Sales must be made pursuant to the registration by Qualification (Intra-state or Merit Review) requirements of Chapter 517.081, Florida Statutes, and Rule 69W-700.001, Florida Administrative Code, and the dealer registration requirements of Chapter 517.12, Florida Statutes.

Rule 506 Filings (Offerings):

Florida does not require any Notice filing fee, or consent to service for Rule 506 Filings (Offerings), Chapter 517.071(1), Florida Statutes.

All sales of securities in Florida must be made by a properly registered Dealer (Chapter 517.12(1), Florida Statutes) or by someone utilizing an exemption provided by Chapter 517.12(3), Florida Statutes. This includes officers and employees of Rule 506 issuers.

There are two exemptions available under Chapter 517.12(3), Florida Statutes, for Issuers of Rule 506 Offerings:

1. Chapter 517.061(19) and 517.021(6)(b)6, Florida Statutes, and Rule 69W-500.016, Florida Administrative Code, requiring the offer and sale to be made by a bona fide employee of the issuer.

2. Chapter 517.061(11) and 517.021(6)(b)6, Florida Statutes, and Rule 69W-500.001-007, Florida Administrative Code, requiring the sale to be made in reliance upon a limited offering exemption.

Please keep in mind that the above information is being provided for informational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advise. If the reader has any questions concerning the contents of this post, you should contact a qualified professional.

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Carolina Financial Securities, LLC – South Florida Private Placement Fraud and Mismanagement FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Wed, 25 Jun 2014 01:21:55 GMT

June 2014 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Carolina Financial Securities, LLC (Brevard, North Carolina) submitted a Letter of Acceptance Waiver and Consent in which the firm was censured and fined $50,000. Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that is sold a private placement offering that was unregistered pursuant to the exemption provided with Rule 506 of Regulation D to the investors for a total investment of approximately $1.1 million. The findings stated that the firm had procedures in place for the supervision of the sale of private placements, but failed to follow its own procedures for the review and verification of statements made in offering documents. (Case # 2011025755101). To review the full release, please follow the highlighted link.

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Gaeton S. Della Penna – South Florida Private Placement and Private Investment Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Wed, 21 May 2014 15:10:47 GMT

Boca Raton, Boynton Beach, Delray Beach, West Palm Beach, Lantana, Florida Private Placment and Private Investment Fraud, Misrepresentation and Mismanagement FINRA Arbitration and Litigation Attorney:

Securities and Exchange Commission v. Gaeton S. Della Penna et al., Civil Action No. 8:14-CV-1203T30MAP

The Securities and Exchange Commission recently filed charges against Gaeton “Guy” S. Della Penna of Sarasota, Florida for engaging in a scheme to defraud investors who purchased securities in his private investment funds.

According to the complaint the SEC filed in the U.S. District Court for the Middle District of Florida, from 2008 until 2013, Della Penna defrauded investors in three private investment funds he operated. Della Penna raised approximately $3.8 million from investors, who were told their funds would be used to trade securities or invest in small companies. The SEC’s complaint alleges Della Penna lost nearly all of the investors’ money through a combination of unsuccessful investments, operating a Ponzi scheme, and diverting a large sum to himself. Della Penna misappropriated investor funds totaling about $1.1 million to pay personal expenses, including mortgage payments on his 10,000 square foot home and payments to his girlfriend. To cover up his fraud, Della Penna operated a Ponzi-like scheme by using later investors’ money to pay fake “returns” to prior investors. He also provided false account statements and other documents to some investors. Gaeton Capital Advisors, LLC, an entity to which Della Penna transferred some of the investor funds, is named as a relief defendant.

The SEC’s complaint alleges Della Penna violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8(a) thereunder. The SEC is seeking financial penalties, disgorgement of ill-gotten gains plus prejudgment interest, and a permanent injunction against Della Penna. The SEC seeks disgorgement of ill-gotten gains from relief defendant Gaeton Capital Advisors, LLC.

Also, the U.S. Attorney’s Office for the Middle District of Florida today announced related criminal charges against Della Penna.

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Lunick Jean Dorleus – Florida Securities Investment Club and Unapproved Outside Business Activity FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Wed, 05 Mar 2014 01:07:14 GMT

South Florida Broker/Dealer and Account Executive Investment Club and Unapproved Outside Business and Negligent Supervision FINRA Arbitration, Litigation and Probate Estate Attorney.

January 2014 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Lunick Jean Dorleus (CRD #5436401, Registered Representative, Greenacres, Florida) submitted a Letter of Acceptance, Wavier and Consent in which he was suspended from association with any FINRA member in any capacity for nine months. In light of Dorleus’ financial status, no monetary sanction has been imposed. Without admitting or denying the findings, Dorleus consented to the described sanction and to the entry of findings that, at the behest of an individual, Dorleus and other individuals formed an investment club whereby investors’ funds would be collected, forwarded to the individual or entities the individual controlled, and ultimately used by the individual for unspecified securities investments. The findings stated that Dorleus participated in private securities transactions of investors. FINRA Case No. 2011029760701. To review the entire FINRA release relative to this matter, please follow one of the above referenced links.

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Michael Andrew DeRosa – Florida Unregistered and Selling Away Promissory Note FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Wed, 05 Mar 2014 00:50:05 GMT

South Florida Broker/Dealer and Account Executive Selling Away and Unregistered Promissory Note and Negligent Supervision FINRA Arbitration, Litigation and Probate Estate Attorney.

January 2014 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Michael Andrew DeRosa (CRD #2491296, Registered Representative, Bethesda, Maryland) submitted a Letter of Acceptance, Wavier and Consent in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, DeRosa consented to the described sanction and to the entry of findings that he failed to appear and provide testimony regarding his involvement, if any, in a company’s offer and sale of promissory notes. The findings stated that DeRosa, through counsel, informed FINRA that he would not appear and provide on-the-record testimony. FINRA Case No. 2013035683401

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Donald Richard Dahn – Florida Financial Abuse, Misappropriation and Unauthorized Loan FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Fri, 28 Feb 2014 11:51:00 GMT

Florida Broker/Dealer and Account Executive Negligent Supervision and Account Executive Financial Misappropriation, Unauthorized Loan and Elder Abuse FINRA Arbitration, Litigation and Probate Estate Attorney.

January 2014 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Donald Richard Dahn (CRD #2172800, Registered Representative, Palm City, Florida) submitted a Letter of Acceptance, Wavier and Consent in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Dahn consented to the described sanction and to the entry of findings that he borrowed a total of $27,100 from public customers without the ability to repay the loans that had been represented to be used for operating expenses for a company Dahn ran with his brother. The findings stated that Dahn failed to disclose the loans to his members firms. The firms’ WSPs prohibited borrowing money from customers. Dahn has failed to repay either of the loans, one of which required payment within 90 days. Dahn misappropriated the funds by failing to repay either loan, and by borrowing customer funds without the ability to repay the loans. FINRA Case No. 2013036768101

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South Florida Oil and Gas Suitability, Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Fri, 28 Feb 2014 11:24:45 GMT

South Florida Oil and Gas Suitability, Fraud and Misrepresentation FINRA Arbitration and Litigation Attorney.

January 2014 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Benjamin Irby Cox (CRD #5761085, Registered Representative, Dallas, Texas) submitted a Letter of Acceptance, Wavier and Consent in which he was fined $5,000 and suspended from association with any FINRA member in any capacity for one year. The fine must be paid either immediately upo0n Cox’s reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Cox consented to the described sanctions and to the entry of findings that he cold-called potential investors as part of a process to identify investors for oil and gas offerings his firm offered and sold. The findings stated that during the cold calls, Cox was responsible for gathering and documenting suitability information about the potential investors. Cox was supposed to verify the potential investor’s name, address and occupation, and obtain financial investment experience information, and was also supposed to determine the potential investor’s interest in oil and gas investments. Upon obtaining this information, Cox was required to document the information he gathered on contact forms and submit them to the firm. The findings also stated that Cox falsified the suitability information on some contact forms he submitted to the firm. In particular, the contact forms contained false information about the potential investor’s address, occupation, financial status and/or investment experience. FINRA Case No. 2012030728501.

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Oil and Gas Limited Partnership and Oil and Gas Offering Fraud, Misrepresentation and Mismanagement Litigation and Arbitration Attorney

Russell L. Forkey — Sat, 08 Feb 2014 12:42:42 GMT

Oil and Gas Limited Partnerships and Oil and Gas Offering Fraud, Misrepresentation and Mismanagement – South Florida, including Fort Lauderdale, Pompano Beach, Deerfiled Beach, Boca Raton, Boynton Beach, Delray Beach, Lake Worth and West Palm Beach, Litigation and Arbitration Attorney

An oil and gas limited partnership is legally set up using the same format as any type of limited partnership. It is created by filing articles of limited partnership or its equivalent in the state of its domicile. For example, Florida Statute, Chapter 620 governs the legal requirements that must be followed in the formation, operation and dissolution of the limited partnership, whether it is engaged in the oil and gas business or not. This post is limited to a general discussion of an oil and gas limited partnership.

An oil and gas limited partnership is made up of one or more general partners and one or more limited partners. Generally, it is structured to find, extract, and market commercial quantities of oil and natural gas. These types of investments are usually offered by prospectus, in the case of a public offering, and by a private offering memorandum, in the case of a private offering of securities. In either offering document, it is important to consider, among other things, who is making the offering, which brings to the forefront such items as experience, prior success and financial stability. The next important section of the document relates to the “risk” factor section of the document. Usually, in bold type there is a phrase such as “this offering involves a high degree of risk and should be considered only by those investors who can stand to lose their entire investment.”

In reading and attempting to understand a prospectus or private offering memorandum relative to an oil and gas limited partnership, it is important to bear in mind that there are a number of key words and phrases that are used throughout the document, which are words of art and many times do not mean exactly how the reader would interrupt them. For example, what is an exploratory or wildcat well vs. a development well vs. a development drilling program? Does it make a difference on the risk vs. reward scale how deep the well is going to be drilled and the type of geological formations that the well will have to be drilled through? What is the importance of such phrases of “working interest” or “revenue interest?”

If you are reading this post, you should be getting the idea that these are very complicated investments and that you should seek qualified professional advice before making an investment. Some but not all of risks can be reduced if you know what can be verified and how to go about doing it.

Normally, we don’t include asides with educational posts; however, in the most recent case that we dealt with concerning an oil and gas venture, there were a number of fraudulent statements that were made and documents provided by the promoters to the investors. One of the most glaring was the fact that the investors wanted to see some of the other producing wells that had been drilled by the promoter. The promoter was quick to comply with the request and showed the investors a number of other wells that it had drilled, which were producing oil and gas. Unfortunately, the investors did not know how to verify this representation and later found out that the promoter had no interest in any of the wells.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of oil, gas and 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.

FAQ’s Warrants – Florida Securities and Investment Fraud, Misrepresentation and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Fri, 03 Jan 2014 23:56:30 GMT

FAQ’s Warrants – Miami, Hollywood, Fort Lauderdale, Deerfield Beach, Lighthouse Point and Boca Raton, Florida FINRA Arbitration and Litigation Attorney:

A warrant is a type of security, usually issued in conjunction with common or preferred stock, that entitles the holder to buy a proportionate amount of common stock at a specified price, usually higher than the market price at the time of issuance, for a period of years or to perpetuity.

Many times warrants are included as part of units issued in private placements. The warrants are included as part of the units as a “kicker” to the investor to take on the risk associated with investing in the private placement. Conversely, if the warrants are exercised, they provide the issuer with additional unsolicited funds.

Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as providing legal or investment advice. If you have any questions concerning the contents of this post, you should contact a qualified professional.

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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.

Private Equity – Private Investment – Private Security – Florida Fraud, Misrepresentation and Mismanagement FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Wed, 25 Sep 2013 10:03:38 GMT

Private Equity, Private Placement and Private Investment – South Florida Fraud, Misrepresentation and Mismanagement State and Federal Litigation and FINRA Arbitration Attorney:

The Securities and Exchange Commission recently charged the former president of a purported private equity real estate firm based in San Bernardino, Calif., with defrauding nearly 500 investors who purchased promissory notes under the false premise that they were secured by specific properties or other collateral.

The SEC alleges that Larry Polhill used his company American Pacific Financial Corporation (APFC) to buy and sell real estate and distressed assets, and he offered investors the opportunity to invest in the company through unregistered notes that would yield them interest payments of 5 to 17 percent per year. However, the collateral that Polhill and APFC claimed made the investments secure was often non-existent or otherwise impaired. The properties underlying the investments were sometimes even sold without notice to investors. When APFC eventually filed for bankruptcy, it named the investors as unsecured creditors who were owed nearly $160 million. None of Polhill’s investment offerings were registered with the SEC.

Polhill agreed to settle the SEC’s charges and be barred from acting as the officer or director of any public company. The settlement is subject to the approval of the U.S. District Court for the Central District of California, which would decide monetary sanctions at a later date.

According to the SEC’s complaint, in addition to promissory notes, investors also could invest in APFC-sponsored funds that pooled investor money to make loans to APFC. The company made regularly scheduled interest payments to investors in the notes and the funds from the mid-1980s to 2007. As a result, its investor base continually grew and the company began making larger and larger investments in distressed assets by buying numerous companies out of bankruptcy. While a few of APFC’s investments were successful, the vast majority failed unbeknownst to investors. Consequently, the assets held by APFC that were securing the notes and loans held by investors decreased in value. In early 2008, APFC ceased making its scheduled payments to most investors, but continued to issue newsletters, pay preferred investors, and engage in other activities designed to create a false sense of security about the investments in the company.

The SEC alleges that Polhill made several material misrepresentations to investors. Specifically, he told investors that the notes were secured by collateral when no such security interest existed. He failed to disclose that the collateral securing some investors’ notes already had been pledged to other lenders. Polhill represented that he would notify investors if their collateral went into default when that was often not the case. For instance, one investor’s note specifically stated it was secured by property located in Hesperia, Calif., that was owned by APFC and pledged as collateral. However, APFC sold the collateral in 2004, and neither Polhill nor APFC informed the investor that his collateral had been sold and there was no longer any asset securing the note.

The SEC’s complaint charges Polhill with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) and Rule 10b-5 of the Securities Exchange Act. Polhill has consented to the entry of an order that permanently enjoins him from violating these laws and permanently bars him from acting as an officer or director of any public company.

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South Florida Money Manager Fraud, Mismanagement and Breach of Fiduciary Duty FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Tue, 17 Sep 2013 00:13:18 GMT

Securities and Exchange Commission Charges Purported Money Manager in New York Who Schemed Investors and Lied to Commission Examiners

The Securities and Exchange Commission (Commission) recently charged the owner of a New York-based investment advisory firm with defrauding investors while grossly exaggerating the amount of assets under his management.

The SEC alleges that Fredrick D. Scott of Brooklyn, N.Y., registered his firm ACI Capital Group as an investment adviser and then embarked on a series of fraudulent schemes targeting individual investors and small businesses. Scott repeatedly touted ACI’s registration under the securities laws and falsely claimed the firm’s assets under management to be as high as $3.7 billion to bolster his credibility when offering too-good-to-be-true investment opportunities. As Scott solicited funds from investors after promising them very high rates of return, he simply stole their money almost as soon as they deposited it with ACI. Scott paid no returns to investors and illegally used their money to fund such personal expenses as his children’s private school tuition, air travel and hotels, department store purchases, and several thousand dollars in dental bills.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today announced Scott has pleaded guilty to criminal charges. Among the charges to which Scott has pleaded guilty is making false statements to SEC examiners when they questioned whether Scott and ACI had accepted loans from investors. SEC examiners notified the agency’s Enforcement Division, which began investigating and referred the matter to criminal authorities.

According to the SEC’s complaint filed in federal court in Brooklyn, one variation of Scott’s fraud was a so-called advance fee scheme – Scott promised investors that ACI would provide multi-million dollar loans to people seeking bank financing. But investors were told that they first needed to advance ACI a percentage of the loan amount, and once they did so they would receive the remaining balance of the amount that Scott promised to pay. Scott had no intention of ever returning the money, nor did he repay it.

The SEC alleges that in another iteration of his fraud, Scott offered investors the opportunity to make a bridge loan to a third-party entity. The investor was told to fund one portion of the loan, and ACI would supposedly fund the remaining balance. In exchange, the investor would supposedly receive a substantial return on his initial investment. In this scheme as with each of his others, investors never received returns and Scott stole the money.

The SEC’s complaint charges Scott with violating Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5, Section 207 of the Investment Advisers Act for filing a false Form ADV, and aiding and abetting ACI’s improper registration in violation of Section 203A of the Advisers Act.

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Fraudulent Promissory Note Offering – South Florida Securities and Investment Fraud FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Tue, 10 Sep 2013 09:53:44 GMT

SEC Files Civil Injunctive Action Against Alleged Perpetrator and Unregistered Broker in Fraudulent Promissory Note Offering

Recently, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the District of Colorado against Brian G. Elrod for allegedly conducting a fraudulent offering of promissory notes for which Nova Dean Pack acted as an unregistered broker. Elrod and Pack reside in Buffalo Creek, Colorado and Highland, California, respectively.

The Complaint alleges that, from at least March 2009 through November 2009, Elrod and Pack raised approximately $2 million from 12 investors who invested in high-yield promissory notes issued by CFS Holding Company LLC (“CFS”), a Colorado company owned and managed by Elrod. According to the Complaint, Elrod told investors that their investments were secured and guaranteed and would generate annual returns ranging from 12% to 24%. According to the Complaint, Elrod further represented to investors that the proceeds from their promissory notes would be used to expand a group of financial services companies owned and managed by Elrod. The Complaint alleges that the foregoing representations, among others, were false and misleading when made, and that Elrod, rather than use investor money for legitimate business purposes, improperly used most of the investor funds to make substantial payments to himself and family members and to pay for personal expenses, to pay Pack significant commissions for referring investors, and to make interest payments back to investors. According to the Complaint, the CFS note offering was not registered with the Commission, and Pack was not an associated person of a registered broker or dealer at the time he participated in the CFS note offering.

Without admitting or denying the SEC’s allegations, Elrod and Pack agreed to settle the case against them. The settlement is pending final approval by the court. Specifically, Elrod consented to the entry of a final judgment permanently enjoining him from future violations of Sections 5 and 17(a) of the Securities Act of 1933 (“Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and requiring him to pay disgorgement of $1,720,491, the amount of his ill-gotten gains, plus prejudgment interest of $295,817, and a civil penalty of $1,720,491. Pack consented to the entry of a final judgment permanently enjoining him from future violations of Section 5 of the Securities Act and Section 15(a) of the Exchange Act, and ordering disgorgement of $171,500 plus prejudgment interest of $25,177, but waiving payment and not imposing a civil penalty based upon his financial condition.

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False and Misleading Radio and Television Broker/Dealer Advertising – South Florida Direct (Alternative) Investment and Private Placement Fraud FINRA Arbitration and Litigation Attorney

Russell L. Forkey — Sun, 01 Sep 2013 22:32:40 GMT

Solicitation of Investment Clients by Broker/Dealers and Investment Objectives Through the Use of Radio and Television Programing – South Florida False and Misleading Advertising FINRA Arbitration and Litigation Attorney

The Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory authority assigned the responsibility, by the Securities and Exchange Commission, to license, regulate and discipline securities broker/dealers and their employees, including account executives. In the event that FINRA elects to institute and enforcement action, firms and licensed individuals have the responsibility to reflect such action of their U-4 and/or U-5 filings, which can be viewed on the FINRA website under the broker-check section of the site or by viewing the monthly disciplinary information also provided on the FINRA site.

The monthly disciplinary information is referenced on the site generally in alphabetical order. This post relates to the following company or individuals. If the reader would like to review the entire FINRA release or the broker-check information concerning this matter, you can follow these highlighted links:

August 2013 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Manny Aizen a/k/a Manuel Aizen (CRD #1676247, Registered Principal, Dallas, Texas), Edward Michael Milkie (CRD #871257, Registered Principal, Dallas, Texas) and Daniel Edward Levin (CRD #707280, Registered Representative, Dallas, Texas) submitted Offers of Settlement in which they were each fined $30,000. Aizen and Milkie were each suspended for association with any FINRA member in any principal capacity for six months. The fines must be paid either immediately upon their reassociation with a FINRA member firm following their suspensions, or prior to the filing of any application or request for relief from any statutuory disqualification, whichever is earlier. Without admitting or denying the allegations, Aizen, Milkie and Levin consented to the described sanctions and to the entry of findings that Levin made unwarranted and misleading statements and claims concerning investment products on radio shows, and made unbalanced statements on their member firm’s website regarding life settlements. FINRA Case No. 2009016271801. To review the entire FINRA release relative to this matter, please follow one of the above referenced links.

Over the years, mass media such as television and radio programs have been used by brokerage and/or account executives to attempt to generate new clients for themselves or interest in specific forms of product. As such, all information provided during the program must be accurate in all material respects and must not omit any information which would make the statements misleading.

In order for an account executive, to become involved in such a television or radio program, he or she must get approval from their broker/dealer to engage in such activity, who then has the responsibility to reasonably monitor the program. In order to establish guidelines relating to the approval process and its continuing supervisory responsibilities, the broker-dealer must establish and implement a reasonable written supervisory system to safeguard customer assets. If the brokerage firm fails in its duty to reasonably supervise the account executive’s activity during this activity, the firm may be liable to the client for any losses associated with such activity.

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