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TAG | omitting material facts in sales of promissory notes to investors

Mar/13

19

FINRA Fines and Suspends Rep, William Coons

Comments off · Posted by Securities Lawyer in FINRA

The following information is from FINRA’s website under “Disciplinary and Other FINRA Actions, March, 2013.”

William Howard Coons (CRD #2049465, Registered Supervisor, West Hartford, Connecticut)

was fined $10,000 and suspended from association with any FINRA member in any capacity for 20 business days.
Without admitting or denying the findings, Coons consented to the described sanctions and to the entry of findings that he negligently omitted material facts and made material misstatements in connection with his sale of approximately $2 million in promissory notes issued by his member firm’s parent company.

FINRA’s findings stated that Coons did not adequately understand the present financial condition of the issuer, or its ability to make payments on the notes, when he sold the notes. Coons was not provided with a private placement memorandum or financial statements of the issuer prior to selling the notes. Coons was provided with financial statements of the issuer’s two broker-dealer subsidiaries, but these results omitted the substantial debt and other expenses that caused the consolidated entity to operate at a loss.

FINRA’s findings also stated that Coons conducted his own due diligence on the issuer’s business plan and future prospects, and spoke to the heads of the issuer’s existing and anticipated new business lines, but relied
on statements by his firm’s president and CEO to develop his understanding of the issuer’s financial results. As a result, Coons failed to adequately understand or disclose the issuer’s actual financial condition to his customers when he sold them the notes.

These findings also included that while Coons was selling the notes, the issuer defaulted on the notes that it
had issued to retail investors and had also missed interest payments owed to at least some note holders, and had, for several years, failed to make interest payments to retail investors who had purchased the company’s preferred stock. Coons did not understand these facts and did not disclose them to his customers.

FINRA found that in some instances, Coons negligently misstated the issuer’s financial condition. Coons told certain customers that the issuer was breaking even and that the company’s cash flow could service both its current and existing debt. Coons did not have a reasonable basis for making these statements. In fact, the issuer was losing money and was unable to service its existing debt. FINRA also found that in some instances, Coons provided customers with historical financial statements of the issuer’s broker-dealer subsidiaries
that did not include the separate results of the issuer, so the financial statements Coons provided to certain customers were materially misleading.

In addition, FINRA determined that although Coons did tell potential investors that they could lose their entire investment,he min imized the likelihood of this happening, and failed to disclose facts indicating the
likelihood of a default on the notes he was selling. Moreover, FINRA found that after the issuer defaulted on the notes, those investors who agreed to sign releases and invest additional funds in a related enterprise were returned the principal and interest they invested. To date, other investors who purchased the note from other brokers have not received the return of their principal and interest.

The suspension is in effect from February 19, 2013, through March 18, 2013. (FINRA Case #2011026346205)

The following information is from FINRA’s BrokerCheck:

Coons is currently employed by and registered with the following FINRA Firm(s):
HALLMARK INVESTMENTS, INC.
6 EAST 39TH STREET
NEW YORK, NY 10016
CRD# 135003
Registered with this firm since: 10/21/2010

This broker was previously registered with FINRA at the following brokerage firms:
MONARCH FINANCIAL CORPORATION OF AMERICA
CRD# 23437
NEW YORK, NY
10/2010 – 10/2010

WESTROCK ADVISORS, INC.
CRD# 114338
NEW YORK, NY
06/2009 – 10/2010

MAXIM GROUP LLC
CRD# 120708
NEW YORK, NY
10/2002 – 07/2009

This ends the information from FINRA’s website.

Call Soreide Law Group, a Securities Arbitration Law Firm, for a free consultation with an attorney on how to potentially recover your investment losses at 888-760-6552.

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Dec/11

19

Jeffrey Rachlin Fined and Sanctioned by FINRA

Comments off · Posted by Securities Lawyer in FINRA

Jeffrey Rachlin (CRD #823547, Registered Principal, Pleasantville, New York)
 
has submitted a Letter of Acceptance, Waiver and Consent in which he was fined $10,000, suspended from association with any FINRA member in any capacity for 30 business days, and suspended from association with any FINRA member in any principal capacity for 18 months. The fine must be paid either immediately upon Rachlin’s reassociation with a FINRA member firm following his all-capacity suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier.
 
FIRNA reports that without admitting or denying the findings, Rachlin consented to the described sanctions and to the entry of findings that his member firm, acting through Rachlin and another firm principal, negligently omitted material facts in connection with its sales of promissory notes to investors.
 
These findings stated that the notes were issued by an entity which was controlled by a real estate developer. The firm, acting through Rachlin and another firm principal, negligently failed to disclose to investors that the entity had been experiencing cash flow problems and that the entity and other companies affiliated with the real estate developer had failed to make required interest payments to investors. The findings also stated that the firm, acting through Rachlin and another firm principal, negligently failed to disclose that it was unlikely that the entity’s affiliated company would be able to make its scheduled principal payments totaling $10 million that were due to its note holders.
 
 These findings also included that Rachlin helped prepare a document called “Investor Letter” for a company; the letter was later distributed by his firm. The Investor Letter constituted a research report, but it failed to disclose a firm representative’s ownership interest in the company and his receipt of compensation from the company.
 
Also, FINRA found that Rachlin helped prepare presentations regarding the company, which the firm’s registered representatives used to solicit potential investors at seminars. The presentations contained statements and projections that were without basis and were false, exaggerated, unwarranted and/or misleading, and failed to provide a balanced presentation by omitting material information regarding the significant risks associated with an investment in the company.
 
This suspension in any capacity is in effect from November 7, 2011, through December 19, 2011. The suspension in any principal capacity is in effect from November 7, 2011, through May 6, 2013. (FINRA Case #2010021058403)
 
This article is from FINRA’s website under ‘Disciplinary and Other FINRA Actions December 2011.’
 
Securities Attorney, Lars Soreide, of Soreide Law Group, PLLC, has represented clients nationwide. If you or a family member have experienced losses through Jeffrey Rachlin, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses. To speak with an attorney, call 888-760-6552, or visit www.securitieslawyer.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.

 

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