PHILADELPHIA (OCTOBER 30, 2017) – The Guiliano Law Group, P.C. filed an arbitration action before the Financial Industry Regulatory Authority (“FINRA”) Office of Dsipute Resolution against Newbridge Securities Corporation, based upon the conduct of its former Registered Representative, Austin R. Dutton, Jr., alleging the violation of the federal securities laws, the Pennsylvania Securities Act, the Pennsylvania Unfair Trade Practices and Consumer Protection Act, and for the sale of unsuitable securities, negligence, common law fraud, breach of fiduciary duty, and the failure to supervise in connection with the recommendation and sale of certain Real Estate Investment Trusts (“REITs”) and other non-traditional investments
According to the Statement of Claim, until August 17, 2017, Austin Dutton was a registered representative of Newbridge Securities Corporation conducting business under the name Bridge Valley Financial Services at 171 South Main Street, Doylestown, Pennsylvania 18901.
On July 24, 2017, Dutton and the Commonwealth of Pennsylvania, Department of Banking and Securities entered into a Consent Agreement and Order staing among other things that Dutton was charged with the violation of Section 305(a)(ix) of the Pennsylvania Securities Act, and Regulation 305.019, as promulgated thereunder, for engaging in “dishonest or unethical practices in the securities business by recommending to a customer the purchase, sale, or exchange of a security without reasonable grounds to believe that the transaction or recommendation was suitable for the customer based upon reasonable inquiry concerning the customer’s investment objectives, financial situation and needs and other relevant information known by the agent.” Commonwealth v. Dutton, Docket No. 17-00046 (July 24, 2017). However, it probably should be pointed out that altough Mr. Dutton consented to the “findings” and the imposition of a $200,000 fine, payable in 24 instalments of $8,333, for two years, he did so “in lieu of litigation, and without admitting or denying the allegations.”
One week earlier, on July 18, 2017, in a separate proceeding, Newbridge also entered into a Consent Agreement and Order with the Commonwealth of Pennsylvania, Department of Banking and Securities and agreed to pay a fine of $499,000 for the failure to maintain a reasonable system, the failure to apply and enforce written procedures pertaining to their sales of structured products by one agent in Pennsylvania to certain of his clients who were residents of Pennsylvania. Commonwealth v. Newbridge Securities Corporation, Docket No. 17-00043 (July 18, 2017).
Dutton’s employment was terminated by Newbridge on August 17, 2017, upon the filing of Uniform Termination Notice for Securities Industry Registration Form U5. It is unclear whether “at the time of his termination [he] was, the subject of an investigation or proceeding by a domestic or foreign governmental body or self-regulatory organization with jurisdiction over investment-related businesses, under internal review for fraud or wrongful taking of property, or violating investment-related statutes, regulations, rules or industry standards of conduct, involved in any disciplinary action by a domestic or foreign governmental body or self-regulatory organization (other than those designated as a “minor rule violation” under a plan approved by the U.S. Securities and Exchange Commission) with jurisdiction over the investment-related businesses.” (FINRA Form U5, Rev. 2014, Questions 7A-7E).
According to the Statement of Claim, Dutton actively solicited retirees of the Philadelphia Fraternal Order of Police, and the Philadelphia Firefighters and Paramedics Union in connection with the provision of “retirement advice.” The link from the Philadelphia Fraternal Order of Police Lodge #5 website, under the hearing “Financial Planning” directly to Dutton’s website appears to have been removed by FOP officials.
Dutton is purportedly an expert in retirement planning for public employees. and continues to offer on his website, “several attractive investment and benefit opportunities available through City of Philadelphia Employee membership.”
On July 31, 2017, Philadelphia Inquirer reporter Joseph DiStefano wrote “at free prospective-client steakhouse dinners, in ads in Fraternal Order of Police Lodge 5 publications, in meetings at the FOP hall to which firefighters and other city workers were invited, and on his Web site (which particularly appealed for FOP members to invest their early-retirement DROP money), Dutton expounded his gospel of mixing traditional and non-traditional investments.” Broker who specialized in police, firefighters fined $200K” (JULY 31, 2017); See also, “After settling with Pa., Dutton joins S.C. brokerage (Update)”(SEPTEMBER 29, 2017); “PhillyDeals: Investment adviser to police and firemen deals with Shorsch firms fallout”; “Broker explains Schorsch funds he sold to Philly cops”
By way of background, in addition to the basic pension plan available to retirees, the City of Philadelphia also offers a Deferred Retirement Option Plan (“DROP”).
Under this voluntary program, employees who are eligible to retire can select a date to retire for pension purposes. During the period of DROP participation, employees continue to receive wages and non-pension benefits in the same manner as all other employees. For pension purposes, however, they are considered retired, and at the time of separation from City service, the amount in the account, plus interest, is paid to the employee as a “lump sum.”
It appears, and has been “alleged”, by Claimants and the Commonwealth that Dutton sold these retirees “structured investments” and Real Estate Investment Trusts.
“Structured Products,” or alternative investments include Real Estate Investment Trusts (“REITs”) or Principal Protected Notes, are high risk and/or illiquid investments, which cannot be sold in the marketplace and are not suitable for most investors particularly retirees.
FINRA has consistently cautioned its members that when these investment investments involve retirement accounts or lump-sum pension plan payments, taking undue risks with funds needed to last a lifetime can be financially disastrous. (See FINRA Notice to Members 07-43)(Notice to Members 10-22); (April 2010); See also, Regulatory Notice 13-18, FINRA Provides Guidance on Communications With the Public Concerning Unlisted Real Estate Investment Programs (May 2013).
In this particular case, the securities at issue include: a) American Finance Trust Inc. (REIT); b) Cottonwood Residential Inc. (REIT); c) Global Net Lease, Inc. (REIT); d) GWG Holdings Inc. (REIT); e) Preferred Apartment Communities (REIT); f) Quantum Group, Inc. g) Tier REIT, Inc. (REIT); and h) United Development Funding (REIT). Last year, United Development Funding, was raided by the FBI, delisted from NASDAQ, and the announced subject of an SEC enforcement action. FBI Raids Headquarters of United Development Funding (Wall Street Journal Feb. 18, 2016).
Newbridge is responsible for Dutton’s conduct and the supervision of his business activities to reasonably detect and prevent the wrongful recommendation and sale of unsuitable securities.
Claimants’ claims are merely “allegations,” and it should be clear that no finding has been made, nor should be inferred, that Mr. Dutton nor anyone else has engaged in wrongful or other bad conduct of any kind. It should also be noted that Austin Dutton is not named as a party in the FINRA arbitration claim, and that Claimants seek to hold Newbridge responsible for his conduct, under Section 20(a) of the Exchange Act and for its failure to supervise his business activities to reasonably detect and prevent the wrongful recommendation and sale of unsuitable securities.
Investors purchasing the securities at issue may be able to recover their investment losses and are urged to consult with qualified counsel to determine their legal rights and obligations.
Guiliano Law Group
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