Aon D. Miller of Chattanooga, Tennessee, a stockbroker with Benjamin F. Edwards & Company, was fined $50,000 and suspended for two years from association with any Financial Industry Regulatory Authority (FINRA) member per an FINRA Extended Hearing Panel Decision which contained findings that Miller engaged in private securities transactions without providing prior written notice to his firm. Department of Enforcement v. Miller, No. 2012034393801 (Dec. 18, 2015).
According to the Decision, Miller had participated in transactions in a variety of different ways, where FINRA claimed he played an active role. Regarding the first issuer that Miller was involved with, Chestnut Development Partners LP, a limited partnership for real estate investing, Miller had reportedly encouraged his clients to invest in CDP and reported back to the issuer’s principal on his progress in marketing the investment. The Decision stated that three of Miller’s clients invested a total of $350,000 in CDP.
Regarding the second issuer, City Title Loan, LLC, a fund for purchasing auto loans in which a fourth client invested, Miller reportedly participated by serving as his client’s proxy in analyzing the investment and dealing with the issuer. The Decision stated that Miller’s client invested $1,000,000 in CTL. Regarding the third issuer, KB International, LLC, a drilling construction company in which the fourth client made another investment, Miller had participated by introducing the potential investment to his client and endorsing the issuer’s principal. Miller’s client reportedly invested $200,000.
FINRA found that Miller’s participation in the CDP transactions was particularly egregious misconduct because of the events that led to the transactions and restrictions that his firm had imposed on him. FINRA found that Miller knew or should have known that he was forbidden to do what he did, which increased the unethical nature of his misconduct.
Regarding his participation in CDP, Miller apparently denied to FINRA that he provided an individual, SW, sample offering documents for an investment fund in order to help SW with developing a business strategy for CDP. The Decision indicated that Miller vaguely described his involvement, admitting that SW merely wanted his feedback on CDP’s business strategy.
Miller’s firm had a product review committee that determined whether the firm would offer and sell a security. The firm’s vice president for alternative products and strategies, Peter Biebel, had led the committee in reviewing CDP. The Decision indicated that the committee rejected a proposal to become a selling agent for CDP. Miller’s firm then specifically instructed him not to discuss, recommend, or solicit BFE clients with respect to CDP. Miller apparently did not follow instructions.
The Decision further indicated that Miller’s firm had not only required its Stockbrokers to give it prior written notice prior to participating in private securities transactions – but had imposed additional conditions on participation in any private securities transactions. The firm had reportedly defined participation broadly and included not only solicitation but also providing advice or referrals concerning the sale, purchase, or distribution of non-registered securities.
The Decision stated that Miller invested in CDP without giving prior written notice and obtaining the required approval from his company, notwithstanding his company’s restrictions regarding the proper procedure that Miller was cognizant of. Miller also reportedly failed to comply with his firm’s instructions prohibiting him from discussing CDP with his client, but rather assisted the issuer in marketing CDP. Miller went on to market an investment to a customer, JGH (a client at BFE), who invested $100,000 in CDP. The Decision subsequently stated that Miller marketed CDP to a second customer, WKJ (a client at BFE), where the customer invested $200,000. Miller then marketed CDP to a third customer, EWR (a client at BFE), who invested $50,000 in CDP.
FINRA found that Miller had participated in transactions for CTL, including a case where one of Miller’s most important clients had invested $1,000,000. Miller reportedly participated in the transaction without giving his Firm prior written notice. Miller was found by FINRA to have analyzed the issuer’s promotional materials and explained aspects of the deal to customer, JDS. Miller reportedly recommended or endorsed the investment.
The Decision further reported that Miller participated in a third issuer, KBI’s transaction by introducing it to his client and endorsed the issuer’s principal. On September 18, 2012, Miller’s firm discovered his activities and investigated him. Following the investigation, the firm terminated Miller on October 2, 2012, after first offering to let him resign. The firm had argued to Miller that Miller placed the firm at risk and that it might lose its licenses due to Miller’s actions.
FINRA’s Extended Hearing Panel found Miller was not credible, in that his explanations for his actions and statements in the various circumstances were frequently at odds with one another. The Extended Hearing Panel concluded that Miller participated in five transactions, where Miller’s customers invested a total of $1,550,000. FINRA found that Miller’s assertions that he was irrelevant to the transactions and had nothing to do with the transactions were simply wrong.
FINRA Rule 3270 states that no registered person like Miller may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his/her member firm, unless he/she is provided prior written notice to the member. Selling away, also known as private securities transactions or undisclosed outside business activities, occurs when a Stockbrokerengages 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.
Public disclosure records via FINRA’s BrokerCheck reveal that Aon Miller has been subject to five disclosure incidents. On August 11, 2005, Miller settled a customer dispute for $13,112.30 after a client alleged that an annuity sold to her was totally misrepresented. On October 2, 2012, Benjamin F. Edwards & Co., Inc., discharged Miller amid allegations of unauthorized outside business activities and private securities transactions.
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