The Firm
negligently omitted material facts in
connection with its sale of
promissory notes, issued by an entity that a real estate
developer controlled. The
firm 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 firm 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.
The firm distributed a document called “Investor Letter” for a
company; 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.
The firm permitted its registered persons to use
presentations regarding
the company to solicit potential investors at seminars; the
presentations contained
statements and projections that were without basis; were false,
exaggerated, unwarranted
and/or misleading; and failed to provide a balanced presentation
by omitting material
information regarding the significant risks associated with
investing in the company. The firm failed to establish, maintain and enforce
a system of supervisory
control policies and procedures that tested and verified that its
supervisory procedures
were reasonably designed with respect to the activities of the
firm, its registered
representatives and associated persons to achieve compliance with
applicable securities
laws and regulations, and created additional or amended supervisory
procedures where
such testing and verification identified a need. The firm’s
supervisory control policies
and procedures failed to identify producing managers and assign
qualified principals to
supervise such managers, and the firm failed to electronically
notify FINRA of its reliance
on the limited size and resources exception.
In addition, F for one
year-end, the firm failed to prepare an annual certification from
its CEO or equivalent
officer, that it had in place processes to establish, maintain,
review, test and modify written
compliance policies and WSPs reasonably designed to achieve
compliance with applicable
FINRA rules, MSRB rules and federal securities laws and
regulations, and that the CEO had conducted one or more meetings with the firm’s CCO in the
preceding 12 months to
discuss such processes. For another year-end, the firm filed an
annual certification that
did not fully comply with FINRA Rule 3130(c). Moreover, the firm failed
to establish, maintain and/or enforce WSPs reasonably designed to
achieve compliance
with the laws and regulations applicable to its business in
conducting private placement
offerings (including training representatives regarding the risks
for these offerings and
establishing standards for determining the suitability of these
offerings for investors), the
review of electronic correspondence and the review and approval of
advertising materials.
Alternative Wealth Strategies, Inc.: Censured; Fined $75,000 (includes $40,000 disgorgement of commissions)