FINRA Sanctions 8 Firms, 10 Individuals Over Private Placement Sales

FINRA has sanctioned eight firms and 10 individuals for selling interests in private placement offerings “without having a reasonable basis for recommending the securities,” the regulatory agency said in a statement. The sanctions included ordering more than $3.2 million in total restitution.

The firms and individuals sold interests in high-risk private placements such as those issued by Provident Royalties, Medical Capital Holdings, and DBSI. These private placements “ultimately failed, causing significant investor losses,” according to the statement.

Earlier this year, FINRA sanctioned two firms and seven individuals over private placements.

According to FINRA, the broker-dealers did not have adequate supervisory systems in place to assess the risks of these offerings. Many of the firms “failed to conduct adequate due diligence,” according to the statement.

“FINRA continues to look closely at sales of private placements to determine whether the selling firms are fulfilling their responsibilities to customers,” Brad Bennett, FINRA’s executive vice president and chief of enforcement said in the statement. “These actions reinforce that any firm or individual who fails to conduct reasonable investigations of these offerings, especially in light of multiple red flags, will not be allowed to shift all the responsibility to the issuers of the fraudulent private placements.”

NEXT Financial Group of Houston, Texas, was ordered to pay $2 million in restitution to affected customers and also fined $500,000 in connection with the sale of three Provident Royalties private placements. Steven Lynn Nelson, the firm’s vice president for investment products, was suspended in any principal capacity for six months and fined $10,000, according to FINRA.

Barry Knight, president of NEXT Financial Group, said in an interview that the firm is “very pleased to have this difficult matter be resolved and to be moving forward with our company, culture and ability to serve our representatives and customers intact.”

Investors Capital Corporation of Lynnfield, Mass., was ordered to pay approximately $400,000 in restitution to affected customers in connection with the sale of two Provident Royalties private placements. The firm was also sanctioned over an additional offering from CIP Leveraged Fund Advisors.  A spokesman for the firm did not return a call for comment.

Garden State Securities of Red Bank, N.J., and Kevin John DeRosa, a co-owner of the firm, were ordered to pay $300,000 in restitution to affected customers in connection with the sale of a Medical Capital private placement. DeRosa was suspended 20 business days in any capacity and two months in any principal capacity and fined $25,000. Vincent Michael Bruno, the firm’s chief compliance officer at the time, was suspended one month in a principal capacity and fined $10,000. The firm did not respond to a request for comment.

Capital Financial Services of Minot, N.D.,  was ordered to pay $200,000 in restitution. Brian W. Boppre, a former firm principal, was suspended in any principal capacity for six months and fined $10,000 in connection with the sale of three Provident Royalties private placements and a Medical Capital private placement. The firm did not respond to a request for comment.

National Securities Corporation of Seattle, Wash., was ordered to pay $175,000 in restitution. Matthew G. Portes, director of alternative investments and director of syndications, was fined $10,000 and suspended in any principal capacity for six months in connection with the sale of three Provident Royalties and a Medical Capital private placement. Kay Johnson, National Securities’ chief compliance officer, said the firm had no comment.

Equity Services of Montpelier, VT, was censured, fined $50,000 and ordered to pay almost $164,000 in restitution in connection with the sale of a private placement issued by DBSI. Stephen Anthony Englese, senior vice president for securities operations, was ordered suspended for 30 business days and fined $10,000. Anthony Paul Campagna, a registered representative, was suspended for 30 business days and fined $25,000. An attorney for Equity Services had not responded to a request for comment by press time.

Securities America of La Vista, Neb., was censured and fined $250,000 in connection with the sale of two Provident Royalties private placements. Janine Wertheim, senior vice president and chief marketing officer, said in an interview that the firm is “pleased to have put this matter behind us.”

Newbridge Securities Corporation of Fort Lauderdale, Fla., was fined $25,000 in connection with the sale of four DBSI private placements and a Medical Capital private placement. Robin Fran Bush, the former chief compliance officer, was suspended for six months and fined $15,000. The firm did not respond to a request for comment.

Leroy H. Paris II, former president and chief executive officer of now-closed Meadowbrook Securities of Jackson, Miss., was suspended six months in any principal capacity and fined $10,000 in connection with the sale of two Provident Royalties private placements and a Medical Capital private placement. He could not be reached for comment by press time.

Michael D. Shaw, formerly with VSR Financial Services of Baton Rouge, La., was barred from the industry in connection with the sale of a private placement offered by DBSI, as well as several additional private placements. In addition, according to FINRA, Shaw falsified customer account documents. Jon Stanfield, co-president and corporate counsel at VSR Financial said the firm typically doesn’t comment on former representatives. “FINRA has a job to do and we respect that,” he said.

 

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