Home Wealth Management FINRA Prices Ex-Rep With Unsuitable Illiquid Alt Recs, False Information

FINRA Prices Ex-Rep With Unsuitable Illiquid Alt Recs, False Information

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FINRA Prices Ex-Rep With Unsuitable Illiquid Alt Recs, False Information

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A former registered rep satisfied 9 shoppers to take a position greater than $2.3 million in illiquid various investments whereas falsifying details about their threat tolerance and even whether or not they had been accredited traders, based on the Monetary Trade Regulatory Authority.

Luke Johnson is charged with steering the traders into the “unsuitable suggestions” whereas pocketing greater than $132,000 in commissions, based on the disciplinary continuing filed Wednesday. His suggestions included quite a few non-public placements with GPB Holdings, whose founder and CEO was indicted in 2021 for securities fraud.

Johnson started within the business in 2000 at Baird, based on his BrokerCheck profile. After transient stints at different companies, together with Northwestern and Summit Brokerage Companies, he landed on the Arizona-based Coastal Equities in 2012, the place he lasted till 2019 (the actions described within the FINRA fees allegedly happened throughout his time at Coastal).

Beginning in April 2015 and for the next three years, Johnson allegedly pushed quite a few traders in direction of illiquid alts, regardless of their profiles. The shoppers go unnamed within the fees, although they embrace quite a few aged retirees and a pair of their late 40s, every with Coastal accounts for his or her 401(okay)s. Johnson acted because the registered rep for all of them, based on FINRA.

Starting in April 2015, Coastal mandated that solely 35% of a buyer’s liquid web value may very well be positioned in various investments and outlawed new alt suggestions or purchases if they might push prospects over that restrict. 

In response, Johnson (or his assistants performing on his orders) would falsify the shoppers’ reported liquid web value on the agency’s buyer account data varieties and alt funding paperwork. Johnson additionally allegedly “falsified these prospects’ reported threat tolerance, liquidity wants, annual earnings and/or their standing as an accredited investor” on subscription agreements and account varieties, based on FINRA. 

“Johnson dramatically inflated his prospects’ web value and liquid web value and dramatically understated the proportion of his prospects’ property invested in various investments with a purpose to circumvent Coastal’s focus coverage and Coastal’s supervisory oversight,” the fees learn.

In whole, Johnson really helpful about $1.05 million in “restricted partnership pursuits” for quite a few GPB restricted partnerships, together with GPB Holdings, GPB Automotive Portfolio and GPB Waste Administration. 

However in 2021, the SEC charged GPB and the b/d advertising its securities with a Ponzi-like scheme that raised greater than $1.7 billion. 

The fee argued CEO David Gentile and Jeffry Schneider (the proprietor of GPB’s placement agent) lied to traders about the place its 8% annualized distribution funds had been coming from, telling traders the cash got here from portfolio firm earnings whereas, in actuality, they used investor funds. 

The Justice Division charged Gentile, Schneider and former GPB Managing Associate Jeffrey Lash with securities and wire fraud for his or her alleged roles within the scheme, with every dealing with as a lot as 20 years in jail. Seven state regulators concurrently filed regulatory actions towards GPB, together with New York, New Jersey, Georgia and Illinois, amongst others. 

Regulators and litigants have additionally gone after brokers who allegedly offered GPB non-public placements. In line with one regulation agency, Advisor Group dealer/sellers alone confronted greater than $19 million in buyer claims from making GPB suggestions.

In December of final yr, Coastal Equities settled fees with FINRA that it didn’t alert shoppers that the agency solicited prospects to buy GPB restricted partnership pursuits, even after GPB Capital alerted brokerage companies promoting its merchandise that its audited monetary statements could be delayed “pending the completion of a forensic audit.” 

In line with FINRA, the agency additionally didn’t supervise an unnamed rep who really helpful prospects buy about $15 million in GPB-related investments. Coastal agreed to a censure and $150,000 nice to settle the fees.

Representatives for Coastal didn’t reply to a request to remark previous to publication. 

Along with the GPB-related suggestions, Johnson pushed shoppers to buy shares in quite a few non-traded Actual Property Funding Trusts (REITs), together with American Realty Capital Hospitality Trusts and MVP REIT. Non-traded REIT dangers embrace illiquidity and excessive front-end prices, which made them unsuitable for Johnson’s shoppers, based on FINRA.

Coastal fired Johnson in Nov. 2019 after he allegedly “didn’t comply with agency coverage by failing to well timed ahead a buyer criticism to his supervisor and compliance, and by inconsistently stating a buyer’s liquid web value on consumer disclosure paperwork,” based on BrokerCheck. 

Johnson hasn’t registered with any companies since then, although he nonetheless has quite a few pending buyer disputes, based on his BrokerCheck profile. The previous rep couldn’t instantly be reached for remark.

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