Securities Headlines: Halcyon Cabot Partners is Expelled from Industry by FINRA, Blackstone Settles Disclosure Failure Charges for Nearly $39M, SEC Approves Proposal to Improve Transparency for OTC Equity Securities
FINRA Expels Halcyon Cabot, Bars Chief Executives
Halcyon Cabot Partners, Ltd. has been expelled by FINRA. The regulator also has barred its CEO Michael Morris and CCO Ronald Heineman from the securities industry. The reasons for the expulsion and bars include fraud, abusive sales practices, the concealment of private placement fee kickbacks, and other purported acts.
According to the self-regulatory organization, Halcyon, the two men, and previously barred former registered rep. Craig Josephberg hid the discount the issuer gave to a venture capital firm when it bought a private placement in a company. The scam was executed using a fake placement fee deal after the venture capital firm agreed to buy all the offerings. However, FINRA said, because there already was a buyer, Halcyon didn’t conduct any work and gave back nearly all of its $1.75M fee to the investor via bogus consulting agreements. As a result, the company was able to hide that its shares were sold at a reduced rate.
FINRA contends that Halcyon did not properly supervise Josephberg, who was making unauthorized trades and churning retail accounts. The regulator is accusing Morris of falsifying Halcyon’s records to hide the securities sales that Josephberg made in states where he wasn’t registered, including Texas.
Blackstone Group to Pay Almost $39M Over Disclosure Failures
The Securities and Exchange Commission said that three private equity fund advisers that belong to The Blackstone Group have consented to pay close to $39 million to resolve charges that they did not fully inform investors about the benefits they received from discounts on legal fees and accelerated monitoring fees. While Blackstone is settling and has consented to the entry of the regulator’s order stating that it breached its fiduciary duty, failed to put into place policies and procedures that were reasonably designed, and failed to correctly disclose information to investors of the funds, it is not denying or admitting to allegations.
The three fund advisers are:
• Blackstone Management Partners
• Blackstone Management Partners IV
• Blackstone Management Partners II
According to the regulator, the three fund advisers did not adequately disclose that the monitoring fees paid by portfolio companies that they owned were accelerated before the companies’ IPO or sale. The payments that Blackstone received lowered the portfolio companies’ value before they were sold, which hurt the funds and their investors.
The SEC said that Blackstone usually charges each fund-owned portfolio company a monitoring fee that pays for consulting and advisory services for about a decade. However, prior to the IPO or private sale of some of the companies, Blackstone purportedly ended monitoring agreements while accelerate future monitoring fee payments. While it disclosed that it could collect monitoring fees before investors committed capital, it did not reveal that it would accelerate monitoring fees until after it received them. Blackstone also is accused of not disclosing it had a legal fee arrangement that gave it a bigger discount than what the funds got.
As part of the settlement, the company will disgorge $26.2 million of ill-gotten gains, pay $2.6 million of prejudgment interest, as well as a civil penalty of $10 million. The money will go to investors that were impacted.
SEC Approves FINRA’s Proposal Related to OTC Equity Securities
The U.S. Securities and Exchange Commission has approved FINRA’s proposed rule enhance its transparency initiative related to over-the-counter equity securities. Per the new rule, the self-regulatory organization will supplement the alternative trading system it published with other equity volume that FINRA members have executed. This should allow investors and market participants to better comprehend the market share and trading volume of a firm.
FINRA has been trying to improve public visibility of off-exchange trading.
Our institutional investor fraud law firm represents institutional clients and high net worth individual investors. Contact The SSEK Partners Group today.
FINRA Expels Halcyon Cabot Partners and Bars CEO and CCO for Fraud, Sales Practice Abuses, and Widespread Supervisory and AML Failures, FINRA, October 7, 2015
FINRA Allowed To Share Over-The-Counter Securities Data, Law360, October 8, 2015
Read the SEC Order in the Blackstone Case (PDF)
To protect the health and safety of the public and our employees, the Department of Banking has limited the number of employees at our office at 260 Constitution Plaza in Hartford. When contacting the Department, please use electronic communication whenever possible. Consumers are encouraged to use our online form for complaints. If you are unsure where to send an inquiry, you may send it to [email protected] and it will be routed appropriately. Thank you for your patience during this time.
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NOTICE OF INTENT TO REVOKE
NOTICE OF RIGHT TO HEARING
DOCKET NO. NR-16-8261-S
I. PRELIMINARY STATEMENT
|1.||The Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the General Statutes of Connecticut, the Connecticut Uniform Securities Act (“Act”), and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies (“Regulations”) promulgated under the Act.|
|2.||The Commissioner brings this administrative action to revoke the registration of Respondent as a broker-dealer in Connecticut pursuant to Section 36b-15 of the Act and Section 4-182(c) of the General Statutes of Connecticut.|
|3.||Respondent is a New York corporation whose address last known to the Commissioner is 767 Third Avenue, 17th Floor, New York, New York 10017.|
|4.||From September 8, 2005 to December 31, 2008, and from March 31, 2009 to the present, Respondent has been registered as a broker-dealer under the Act.|
|5.||The Financial Industry Regulatory Authority (“FINRA”) is a self-regulatory organization registered with the Securities and Exchange Commission (“SEC”) pursuant to Section 15A of the Securities Exchange Act of 1934.|
|6.||On July 16, 2014, Respondent entered into an Acceptance, Waiver and Consent (AWC) with FINRA (Case No. 20130388744-01). The AWC resulted in FINRA censuring Respondent and fining Respondent $7,500. Without admitting or denying the findings, Respondent consented to the sanctions and to the entry of findings that, from January 1, 2013 through September 30, 2013, Respondent failed to transmit 10,134 Reportable Order Events (ROES) to the Order Audit Trail System (OATS) on 176 business days. The findings stated that such conduct violated FINRA Rule 7450(a), and that Respondent did not qualify for exclusion from the OATS reporting requirements because it routed its orders through more than a single Reporting Member.|
|7.||On October 6, 2015, FINRA, through an Order Accepting Offer of Settlement, expelled Respondent from FINRA membership for wilfully violating Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 and Rules 10b-5(a) and (c) thereunder (Case No. 2012033877802). Without admitting or denying the findings, Respondent consented to the sanctions and to the entry of findings that, inter alia|
|8.||On December 16, 2015, FINRA expelled Respondent from FINRA membership for failing to pay fines and/or costs of $316.71 imposed by the July 16, 2014 AWC (Case No. 2013038874401).|
|9.||Section 36b-15(a) of the Act provides, in pertinent part, that “[t]he commissioner may, by order . . . revoke any registration . . . if the commissioner finds that (1) the order is in the public interest, and (2) the . . . registrant . . . (F) is the subject of any of the following sanctions that are currently effective or were imposed within the past ten years . . . (iii) a suspension, expulsion or other sanction issued by a national securities exchange or other self-regulatory organization registered under federal laws administered by the Securities and Exchange Commission . . . if the effect of the sanction has not been stayed or overturned by appeal or otherwise[.]”|
|10.||On November 12, 2015, the Commissioner, through the Securities and Business Investments Division of the Department of Banking, provided Respondent with written notice pursuant to Section 4-182(c) of the General Statutes of Connecticut that a basis existed under Section 36b-15(a)(2)(F)(iii) of the Act to revoke Respondent’s registration as a broker-dealer in Connecticut. The written notice gave Respondent an opportunity to show compliance with all lawful requirements for the retention of its Connecticut broker-dealer registration. The Commissioner requested a written response from the Respondent by December 1, 2015. To date, Respondent has failed to respond to the November 12, 2015 notice.|
IV. STATUTORY BASIS FOR REVOCATION
OF REGISTRATION AS A BROKER-DEALER
Respondent Subject to Sanctions by FINRA
|11.||Paragraphs 1 through 10, inclusive, are incorporated and made a part hereof as if more fully set forth herein.|
|12.||The July 16, 2014 sanction of Respondent, more fully described in paragraph 6, and the October 6, 2015 and December 16, 2015 expulsions of Respondent by FINRA, as more fully described in paragraphs 7 and 8, form a basis for the revocation of Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(F)(iii) of the Act.|
V. NOTICE OF INTENT TO REVOKE REGISTRATION AS A BROKER-DEALER
AND NOTICE OF RIGHT TO HEARING
WHEREAS, the Commissioner has reason to believe that grounds exist to revoke Respondent’s registration as a broker-dealer in Connecticut pursuant to Section 36b-15(a)(2)(F)(iii) of the Act;
WHEREAS, Section 36b-15(f) of the Act provides, in pertinent part, that “[n]o order may be entered under this section except as provided in subsection (c) of this section without (1) appropriate prior notice to the . . . registrant . . . (2) opportunity for hearing, and (3) written findings of fact and conclusions of law”;
AND WHEREAS, the Commissioner believes that the issuance of an order revoking Respondent’s registration as a broker-dealer in Connecticut would be in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act.
NOW THEREFORE, notice is hereby given to Respondent that Respondent’s registration as a broker-dealer shall be revoked, subject to Respondent’s right to request a hearing on the allegations set forth above.
THE COMMISSIONER ORDERS THAT, pursuant to Section 36b-15(f) of the Act, Respondent will be afforded an opportunity for a hearing on the allegations set forth above if a written request for a hearing is received by the Department of Banking, Securities and Business Investments Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800, within fourteen (14) days following Respondent’s receipt of this Notice. To request a hearing, complete and return the enclosed Appearance and Request for Hearing Form to the above address. If Respondent will not be represented by an attorney at the hearing, please complete the Appearance and Request for Hearing Form as “pro se”. Once a written request for a hearing is received, the Commissioner may issue a notification of hearing and designation of hearing officer that acknowledges receipt of a request for a hearing, designates a presiding officer and sets the date of the hearing in accordance with Section 4-177 of the General Statutes of Connecticut and Section 36a-1-21 of the Regulations of Connecticut State Agencies. If a hearing is requested, the hearing will be held on April 26, 2016, at 10 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
The hearing will be held in accordance with the provisions of Chapter 54 of the General Statutes of Connecticut. At such hearing, Respondent will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner.
If Respondent fails to request a hearing within the time period prescribed or fails to appear at any such hearing, the allegations herein will be deemed admitted, and the Commissioner shall issue an order revoking Respondent’s registration as a broker-dealer in Connecticut.
|Dated at Hartford, Connecticut,||_____/s/____________|
|this 16th day of February 2016.||Jorge L. Perez|
I hereby certify that on this 16th day of February 2016, I caused to be mailed by certified mail, return receipt requested, the foregoing Notice of Intent to Revoke Registration as a Broker-dealer and Notice of Right to Hearing to Halcyon Cabot Partners, Ltd., 767 Third Avenue, 17th Floor, New York, New York 10017, certified mail no. 7012 3050 0002 1692 8488.
William C. Hall III
Administrative Orders and Settlements
Jason L. Reid of New York, NY, a registered representative with Halcyon Cabot Partners, Ltd., was permanently barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any and all capacities after consenting to findings that he sold securities by means of false and misleading information; acted as a principal and engaged in investment banking and securities business without proper registration; and willfully failed to report information on his Form U4. Letter of Acceptance, Waiver and Consent, No. 20140421221-01 (Nov. 9, 2015).
According to the AWC, in 2011, while Reid was associated with Halcyon, he had performed investment banking and other types of services for a private company. The AWC stated that as part of the investment banking agreement with Halcyon, the company would pay Halcyon a $10,000 retainer and 6.5% of all funds raised via securities sales. The company had claimed it could provide medical smart cards designed to reduce Medicare and Medicaid fraud by tracking medications, usage for pharmacies, patients, clinics, and doctors. Reid had reportedly been appointed by the company’s board of directors in January 2012, where he would become chief executive officer.
The AWC stated that during the due diligence period in 2011, Reid had obtained information which raised red flags concerning the company and its management. Specifically, the company’s founder, KL, had been enjoined by the New Jersey Superior Court from making materially and misleading statements concerning business prospects associated with a predecessor to the company, while also being enjoined from taking part in unregistered securities sales. Further, the AWC stated that the company was without regular salaried employees to operate its business, had no formal agreements with service providers, never generated revenue, did not own the technology that its smart card product was based upon, and had not finalized any agreement for the use of technology with a foreign company which owned it. FINRA found that KL had made other assurances in 2011 concerning the company that Reid should not have relied upon.
The AWC indicated that Reid’s work for the company included creating offering documents and using them to solicit investors in two private offerings known as the “seed” and “discount” rounds. FINRA found that such documents had failed to discuss the material risks posed by the investment in the company, while also containing misleading and false statements concerning the company’s future business prospects. In one case, the offering document stated that the company had a signed contract for use of the smart card in Medicare and Medicaid programs in New York. The AWC noted that the company had raised $1,300,000 in the two offerings.
FINRA found that Reid knew or should have known that the aforementioned offering documents contained materially false and misleading information and failed to discuss material facts. Reid’s conduct was found to be violative of Section 17(a)(2) of the Securities Act of 1933 and FINRA Rule 2010. FINRA also found that Reid’s engagement in the investment banking business prior to him being registered, where he acted as principal without registration and engaged in sales activity, amounted to violations of NASD Rules 1021 and 1030 and FINRA Rule 2010.
Firms and individuals, quite obviously, are prohibited from unauthorized use or borrowing of a customer’s funds or securities, forgery, non-disclosure or misstatement of material facts, and manipulations and various deceptions. These activities are also subject to the civil and criminal laws and sanctions of federal and state governments.
The Guiliano Law Group
Our practice is limited to the representation of investors in claims, for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost to unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.
Tags: Halcyon Cabot Partners, Jason L. ReidSours: https://securitiesarbitrations.com/halcyon-cabot-partners-broker-barred-for-securities-fraud/
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