Outside Business Activity and Private Securities Transaction Training:
I wanted to provide you with some real life examples from recent disciplinary actions, so I can share with you the importance of why I ask so many
questions and pry into your business (personal and securities). The reason I do that is to help keep everyone out of trouble or to at least
keep us on the same path.
OBAs and PSTs are being heavily enforced with the regulators. In the last 6 months, FINRA has settled about 32 cases in which private securities
trasactions were an issue. Most of these actions relate to advisors being investors/part owners of companies and then recommending and facilitating
investments in this company to others (individuals as well as securities clients).
If you are considering personally investing in a company or recommending this company to others outside of IPI's approved products, you must send
me an email with the details of the proposed investment. The email should include the investment, amount to be invested, who you are discussing
it with, whether you will receive a commission and any other pertinent information. I will talk it through with you and set applicable guidelines
needed for the proposed investment. You must receive approval in writing before purchasing/recommending the investment. Believe me, you would
rather talk to me about a proposed personal investment than explain it to a regulator why you did not follow firm and industry rules. These
steps of receiving written approval also apply to outside business activities. You must seek written approval for an OBA with ourOutside Business Activity form
Submit it to me if you are doing business outside of your activities with IPI/IPI Wealth. I will review the activity and if necessary, approve
it and plac eit on your U4.
Real life examples of recent disciplinary actions related to OBAs and PSTs are below --- please let me know if you have any questions. Thanks,
City National Securities in Beverly Hills, Calif., was censured and fined $250,000 for supervisory lapses from January 2008 through September 2014,
including an OBA that led to substantial investor losses.
The settlement focused on a rep identified only as “DZ” who was involved in several business activities other than his registration with CNS and employment at a CNS-affiliated RIA.
Rep allegedly concealed losses
One of these businesses was an investment fund he operated for his friends, family and himself. An October 2014 internal investigation found DZ
had misrepresented the value of the fund in an attempt to conceal losses since 2007. The fund was worth “a fraction” of the value DZ told fund
Although CNS was aware of the investment fund, it did not conduct any analysis to determine whether it was an OBA that DZ needed to disclose.
DZ had been running the fund before he became associated with CNS, and he discussed his involvement with it with various people associated
with CNS and the affiliated RIA, including his OSJ manager. DZ also used resources of the affiliated RIA to conduct fund business, such as
making trades, sending wires, and e-mailing investors.
CNS also knew of individuals invested in the fund, including at least one associated person of CNS and clients of the affiliated RIA, and that
DZ traded on behalf of the fund through outside brokerage accounts. But CNS did not conduct any analysis to determine whether the transactions
were PSTs that DZ needed to disclose.
$1.8 million in PSTs
Adam Veron of Lake Charles, La., was barred for allegedly participating in PSTs totaling nearly $1.8 million, without first providing written notice
to his firm, Questar Capital Corp., or obtaining its prior approval, according to a FINRA settlement.
In July 2015, Veron formed Contract Funding and Corporate Management, which provided a line of credit to a company with federal procurement contracts.
The second company passed along a portion of its profits to CFCM.
Veron sold approximately $1.74 million in CFCM shares to nine firm customers and another $50,000 worth of shares to one non-customer.
Veron did not provide written notice to, or obtain Questar’s approval for, the $1.8 million worth of investments from July 2015 to December
2016. Questar’s WSPs prohibited reps from engaging in a PST that involved seeking investors to invest in a rep’s own private company.
Veron was registered with Questar from September 2013 until he was terminated by the Minneapolis, Minn.-based firm this past February for his
involvement in outside activities.
A learning experience
Jeffrey Ward Delone, a 28-year industry veteran, who worked in the Malvern, Pa., office of Atlanta-based FSC Securities Corp., from May 2007 to
February was assessed a deferred fine of $10,000 and suspended for six months.
His alleged offense: Delone participated in PSTs in connection with a learning center franchise of which he was a part owner from June 2010 through
Delone recommended and facilitated investments totaling $310,000 in the franchise by six investors, three of whom were FSC customers, according
to the settlement
. Delone did not notify
FSC of his participation in these transactions or obtain the firm’s approval to do so.