South Florida Arbitration & Litigation Lawyer Blog
Private Placement, Fraud, Misrepresentation, and Negligent Supervision FINRA Arbitration and Litigation Lawyer, Russell L. Forkey, Esq.
December, 2011:
Eric Lawrence Bloom (CRD #1742255, Registered Principal, Boca Raton, Florida) submitted a Letter of Acceptance, Waiver and Consent in which he was barred from association with any FINRA member in any capacity. Without admitting or denying the findings, Bloom consented to the described sanction and to the entry of findings that he made material misrepresentations and omissions of fact and unwarranted, exaggerated and misleading statements to investors in connection with the sale of private placement offerings. The findings stated that Bloom misrepresented in an offering’s subscription agreement that the use of proceeds for the offering was initial funding of the company’s ventures in technology risk management solutions and business development of services. The proceeds were actually used to purchase shares of a stock from an individual. Bloom did not disclose the stock purchasing agreement between the company and the individual that predated the offering and failed to disclose the conflicts of interest and control relationships that existed among the company and his member firm’s outside counsel. Bloom failed to disclose that the firm’s outside counsel, who prepared all the offering documents, had created the company to operate out of his residential address and that the outside counsel’s relatives actually owned and operated the company. The findings also stated that for another offering, Bloom misrepresented the offering in the PPM as an investment in membership interests of a company but did not disclose to investors that there was a promissory note between his firm’s CEO and the company’s owner, and that $400,000 was due pursuant to the note. Bloom failed to disclose to investors that $400,000 of investors’ funds had already been paid to satisfy the note and that $352,200 of investor funds from the offering had already been paid by check to pay back the promissory notes from the offering. Until a supplement to the offering memorandum, Bloom failed to disclose to investors the profit distribution from the offering and further failed to disclose the conflicts of interest and control relationships among the offering company, the company that controlled the offering company, and the firm’s outside counsel and counsel’s family. The findings also included that for two other offerings, Bloom failed to disclose to investors in the subscription agreements of both companies the significant regulatory history of the controlling partners of the offerings who had been charged by FINRA in a market manipulation scheme in connection with alleges sales of over $3.5 million of stock to firm customers. Bloom’s firm’s counsel prepared the offering documents in consultation with Bloom. Bloom relied to his detriment on the counsel’s advice about which facts needed to be disclosed and which could be omitted in the offering documents.
FINRA found that Bloom was the principal at the firm responsible for supervising all aspects of the firm’s business, including ensuring compliance with FINRA’s rules regarding communications with the public. Bloom’s firm acted as the sole placement agent for an additional private placement, and the offering memorandum was not fair and balanced regarding the potential investment returns of the partnership. The offering memorandum utilized past performance of the Average of Top 25 S&P 500 Fund as compared to the anticipated returns of investing in the offering. FINRA also found that Bloom’s firm participated in best efforts, minimum-maximum offerings conducted by companies, and instead of having investors deposit their funds into a bank escrow account as required by SEC Rule 15c2-4, the offering documents set forth that an escrow account with a transfer agent would be established for investor funds during the contingency period, causing the firm to violate Section 15(c) of the Securities Exchange Act of 1934 and SEC Rule 15c2-4. (FINRA Case #2009016157801),