Ray solicited prospective investors to purchase promissory notes as a vehicle to fund the start up of a hedge fund and to pay the ongoing operations of the fund; investors purchased more than $675,000 in promissory notes from Ray. Ray represented he could pay above-U.S. market interest rates based in part on the fact he could obtain these rates by investing the funds in a foreign bank; Ray failed to invest the proceeds of the notes with the foreign bank, used some of the proceeds for personal expenses and used proceeds from later sales to pay interest and repay principal amounts due on notes earlier purchasers held.
Ray made materially misleading statements and omissions of fact, including misrepresenting the use of proceeds from the sale of the promissory notes, misrepresenting how and where the proceeds were to be invested, and failing to disclose he was using the proceeds from the sale of promissory notes to pay interest and principal amounts due to earlier note holders. Ray participated in private securities transactions through the sale of promissory notes without providing written notice to his firm describing in detail the proposed transaction, his role therein and stating whether he received, or would receive compensation, and without obtaining his firm’s approval.
Gold engaged in an outside business activity without providing prior written notice to his member firm. Prior to joining the firm, Gold entered into an agreement with a company that seeded hedge funds, to provide advisory services, and which permitted the company to publicly disclose that Gold was a member of the advisory board.
Upon his association with the firm, Gold disclosed his ownership interest in a hedge fund seeded by the company and another unaffiliated company, but failed to provide written notice concerning his ongoing affiliation with the company and continued providing it with advisory services. Because Gold terminated the agreement, he did not receive compensation from the company for his work while associated with his firm.