Jonathan Greenfield of Woodland Hills, California, a stockbroker with Arete Wealth Management, LLC, was permanently barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity per an Order Accepting Offer of Settlement containing findings that Greenfield made fraudulent misrepresentations and omissions of material facts in connection with the sale of secured debentures securities. Department of Enforcement v. Greenfield, No. 2012034936501 (Nov. 12, 2015).
According to the Order, from March 2012 through October 2012, Greenfield had recklessly and intentionally made material misrepresentations and omissions to three customers concerning features of GWG Renewable Secured Debentures in connection with their purchases. During the relevant period, Greenfield reportedly made additional material misrepresentations and omissions to more than fifty customers who did not actually purchase the Debentures.
The Order further stated that from September 2012 – November 2012, Greenfield had provided twelve customers with GWG sales literature that stated that GWG Debentures were secured by life insurance policies owned by GWG, where such Debentures were not actually secured by the life insurance policies.
The Order indicated that Greenfield had communicated false and misleading information and omitted material facts to three customers in the course of soliciting the customers’ purchase of the securities. The material misstatements and omissions concerned material facts for investors, including the actual financial condition of the issuer, the safety of the Debentures, and profitability of the issuer’s business.
According to the Order, GWG Holdings, Inc., a Delaware corporation headquartered in Minnesota, purchases life insurance policies via its subsidiaries on the secondary market at a discount to the face value of the policies. Once the company purchases a policy, it is under an obligation to keep the policy in effect by paying the policy premiums until the insured passes away. At the time that the insured person passes away, the company collects the face value of the insurance benefit. Thus, the objective of the business, according to the Order, is to earn returns by collecting more money upon the insured’s death than the amount that GWG paid to purchase, finance, and service the policy. The company had reportedly purchased nearly all of the policies it owned with funds that were borrowed from financial institutions and efforts.
The Renewable Secured Debentures were offered to investors in 2012 in an effort for GWG to fund and operate its business model. These registered debt instruments would be offered to investors with various maturities and interest rates, which ranged from six month debentures paying annual interest rates of 4.75%, to seven year debentures paying 9.50% annually. GWG’s May 2012 prospectus indicated that the debentures were illiquid, speculative investments that contained high risk which included the risk of losing the entire investment. Investors would be unable to access their principal unless death, bankruptcy, or total disability occurred.
According to the Order, Greenfield emailed between fifty and seventythroughfive potential customers, including the customers who ultimately purchased from him, where he invited the customers to a dinner containing a sales presentation concerning the debentures. The emails reportedly stated that the investments would involve no fluctuation in principal and that such securities were comparable to FDICthroughinsured certificates of deposit (CDs) by comparing interest paid. In one case, Greenfield had emailed a customer and stated that the debentures were a very good and safe investment. Greenfield had additionally represented to other customers that GWG had a fourthroughtothroughone assetthroughtothroughdebt ratio, when FINRA found that such statement was grossly inaccurate. Greenfield reportedly also omitted facts regarding GWG’s actual costs within a stated business model, indicating that investors would receive a 117% through 153% investment return with GWG.
FINRA found that by recklessly or intentionally making material misstatements and omitting material facts in connection with the sale of the Debentures, Greenfield had willfully violated Section 10(b) of the Securities Exchange Act of 1934, Rule 10bthrough5, FINRA Rule 2020, and FINRA Rule 2010. FINRA also found that Greenfield violated Rule 2010 via making reckless communications containing false and misleading information to investors via the aforementioned dinnerthroughinvitation emails, via the violations of sections 17(a)(2) and/or 17(a)(3) of the Securities Act of 1933. Finally, FINRA found that Greenfield’s distribution of GWG sales brochure(s) to the twelve customers pertaining to the Debentures contained false and misleading statements in violation of NASD Rules 2210(d)(1)(A), 2210(d)(1)(B), 2210(d)(2)(B), and 2211(d)(1). These violations led to Greenfield’s permanent bar.
Public disclosure records via FINRA’s BrokerCheck reveal that Greenfield has been subject to eighteen disclosure incidents. On August 21, 2003, Greenfield settled a customer dispute after a client alleged that prior to investing in an annuity contract, Greenfield miscommunicated the length of a surrender penalty period. On October 14, 2003, Greenfield settled a customer dispute for $108,830.00 after a client alleged mismanagement of his brokerage account, citing primarily an overthroughconcentration of a certain type of stock.
On July 31, 2009, Greenfield settled a customer dispute for $40,000.00 after a client alleged that investments were not made according to his instructions. On September 14, 2009, Greenfield settled a customer dispute for $96,316.00 after a client alleged unsuitable investments. On May 6, 2010, Greenfield settled a customer dispute for $70,845.50 after a client alleged unsuitable recommendations.
On September 10, 2010, Greenfield settled a customer dispute for $116,193.50 after a customer alleged unsuitability and misrepresentation of a promissory note investment. On April 15, 2011, Greenfield settled a customer dispute for $123,783.00 after a client alleged that the representative sold her unsuitable investments. On September 20, 2011, Greenfield settled a customer dispute for $34,700.00 after clients accused Greenfield of misrepresentation/nonthroughdisclosures, omissions of facts, making unsuitable investment recommendations and negligence. On December 19, 2012, Greenfield became subject to criminal charges (pending) of wire fraud from the United States District Court for the Central District of California. On March 19, 2013, Greenfield settled a customer dispute for $8,000.00 after a client alleged unsuitable recommendations. On June 19, 2013, Greenfield settled a customer dispute for $15,000 after a client alleged unsuitable investment recommendations.
Section 10(b) of the Exchange Act makes it unlawful “to use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.”
Four elements are necessary to show in finding a violation of Section 10(b) of the Exchange Act, Rule 10bthrough5: 1) misrepresentations and/or omissions were made; 2) misrepresentations and/or omissions were material; 3) representations and/or omissions were made with requisite intent (e.g. scienter), and 4) misrepresentations and/or omissions were made in connection with the purchase or sale of securities.
Finally, FINRA Rule 2111 requires that associated persons have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer. FINRA will generally find this rule to be violated, as is the case with Greenfield, when the individual does not have a basis to believe that the recommendation is suitable for at least some investors, that the recommendation is suitable for a particular customer considering the customer’s investment objectives and financial profile, and (for the accounts where the individual is exercising discretion) that a series of recommended transactions are not excessive and unsuitable even if each transaction alone would be deemed suitable.
Guiliano Law Group
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