Michael A. Nahass of Irvine, California, a stockbroker with Arque Capital, was fined $15,000.00 and suspended from association with any Financial Industry Regulatory Authority (FINRA) member firm in any capacity after consenting to findings that he engaged in undisclosed outside business activities, opened an undisclosed outside securities account, and submitted false compliance questionnaires. Letter of Acceptance, Waiver and Consent, No. 2015044765401 (Jan. 7, 2016).
According to the AWC, in October 2009, Nahass became involved as a director with GOTL, a Nevada Corporation. In February 2012, GOTL had completed a reverse merger with TTC, another Nevada Company formerly known as PS. The AWC indicated that under the merger, TTC became a holding company which conducted business via GOTL, a wholly owned subsidiary. TTC reportedly ceased its prior operations, and continued with GOTL’s business operations of specializing in hydroponic equipment with proprietary technology to create sustainable solutions for the cultivation of indoor agriculture.
The AWC subsequently indicated that from October 2009 – February 2015, Nahass had served as the director of TTC and TTC’s predecessor company, GOTL. Further, from January 26, 2012 through February 9, 2012, Nahass reportedly served as TTC’s president, secretary, and treasurer. The AWC stated that Nahass earned compensation from TTC which was comprised of cash and company stock totaling an estimated $1,272,415.
Nahass, while associated with member firms Purshe Kaplan Sterling Investments and Newbridge Securities Corporation, failed to promptly notify his firms in writing that he was engaged in outside business activities in connection with his director position in TTC. The AWC indicated that Nahass, while associated with Arque, also failed to provide his firm with prior written notification of his involvement in outside business activities as TTC’s director and his brief position as president, secretary, and treasurer of TTC. FINRA found that as a result of the aforementioned conduct, Nahass had violated NASD Rule 3030, FINRA Rule 3270, and FINRA Rule 2010.
According to the AWC, from March 2014 – February 2015, Nahass had opened an individual brokerage account with another FINRA firm where he held and sold shares of TTC, without providing written notification to Arque and another member firm. The AWC indicated that Nahass failed to provide written notice to Arque of the outside securities account or securities transactions. Nahass reportedly completed the new account form at the other FINRA member firm, falsely representing that he was not associated with a FINRA member at the time that the brokerage account was opened. FINRA found that Nahass’ conduct in this regard was violative of NASD Rule 3050(c) and FINRA Rule 2010.
The AWC finally indicated that Nahass had submitted an annual compliance questionnaire to Arque, falsely representing that he did not have outside brokerage accounts. Nahass reportedly also signed and submitted annual compliance questionnaires from 2011 – 2013, falsely representing that he had provided written disclosure of all outside business activities. The AWC noted that Nahass falsely represented in his 2009 annual compliance questionnaire with PKSI that he had provided written disclosure of all outside business activities. FINRA found that Nahass’ false compliance questionnaires were violative of FINRA Rule 2010.
Public disclosure records reveal that Nahass has been subject to at least five disclosure incidents. On March 13, 2009, Nahass settled a customer dispute for $681,817.62 after a customer alleged failure to supervise the use of margin in the customer’s brokerage account. On May 13, 2009, Nahass was subject to bankruptcy. On January 10, 2014, Nahass settled a customer dispute for $75,000 after the client’s attorney had alleged unsuitable investment recommendations.
Selling away, also known as private securities transactions or undisclosed outside business activities, occurs when a stockbroker engages or participates in the sale of securities to investors outside of the formal approval of the securities firm with whom they are associated.
As a general matter, stockbrokers are only permitted to engage in the solicitation or sale of investments and investment related products approved by their firm. However, quite frequently, stockbrokers solicit, participate, or directly engage in the sale of typically unregistered securities or investments without the approval and outside of the auspices of their firm. These investments may take on many forms, and may include the recommendation of an outside money manager, or a hedge fund, which may sometimes turn out to be a Ponzi scheme. Sometimes these outside investments may include off-shore securities, insurance trusts, stocks or ownership interests in small businesses, startup ventures, corporate debentures, mortgage notes, private placements, promissory notes, oil & gas interests, real estate partnerships, pre-IPO shares, and a variety of other investments.
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