Jimmy Wayne Freeman, a broker with Texas-based PlanMember Securities Corp., was ordered by the Texas Securities Board to pay more than $500,000 in restitution to investors after he sold them securities issued by an outside firm without his firm’s permission and without holding the appropriate securities license.
Freeman was also suspended for 12 months from associating in any capacity with any firm registered with the Financial Industry Regulatory Authority (FINRA). He was also fined $10,000 by FINRA.
According to the AWC Accepted by FINRA
According to the Letter of Acceptance Waiver and Consent (AWC) signed by Freeman and accepted by FINRA on Feb. 23, Freeman sold 14 customers more than $1.6 million in pooled investment vehicles known as a note agreements issued by National Life Settlements (NLS). Freeman consented to the entry of findings and the sanctions without admitting or denying the charges.
The note agreements issued by NLS turned out to be fraudulent. In February 2009, the State of Texas sued NLS for distributing fraudulent securities to investors using false and misleading sales practices, including the NLS sales brochures used by Freeman to sell his customers the note agreements, the AWC said.
The information in the sales materials was unfounded and misleading, the AWC said. The materials guaranteed high returns and failed to state risks. As a result of its suit, the State of Texas enjoined NLS from further activity and placed all remaining NLS assets into receivership.
Freeman sold the fraudulent NLS note agreements to 14 of his customers between June 2008 and January 2009 while he was registered with PlanMember, the only firm he has been associated with since he entered the securities industry in May 1999, the AWC said.
He remained registered with PlanMember until July 2011, when he resigned from his position as a result of this disciplinary proceeding, according to FINRA public disclosure records.
Although Freeman was required to ask PlanMember for permission before selling securities issued by another firm, he never did so; nor did he hold the appropriate securities license, the AWC said. Such behavior constitutes a regulatory violation known as selling away.
Through his sales of NLS products, Freeman earned about $170,000 in commissions, the AWC said. He had described the products as safe, suitable investments and had furnished these customers with the fraudulent sales materials produced by NLS.
According to the AWC, Freeman’s conduct violated Rules 3040 and 2110 of the National Association of Securities Dealers (NASD) a FINRA predecessor, as well as FINRA Rule 2010, by selling the note agreements without permission from his member firm.
He also violated NASD Rules 2210(d)(1)(A), 2210(d)(1)(B) and 2110 and FINRA Rule 2010 by distributing false and misleading NLS sales materials to customers. He violated NASD Rules 2310 and 2110 and FINRA Rule 2010 by recommending that the unsuitable NLS products, and he violated NASD Rules 1031 and 2110 and FINRA Rule 2010 by selling securities without the proper license.
The note agreements Freeman sold came in two forms: a Five Year Note Agreement and an Immediate Income Investment Plan. The Five Year supposedly guaranteed a 10 percent return at the end of a five year term.
The Immediate Income plan also claimed it would pay out 10 percent, as well as a biweekly income. Both the Five Year program and the Immediate Income plan were supposed to be secured by thousands of life settlement policies worth billions of dollars, the AWC said.
Both plans operated the same way. They claimed to pool investor funds together into a trust account managed by a third party who would disburse the interest payments to investors.
As described, these note agreements qualified as securities and the seller was therefore required to hold a Series 7 license. Freeman never held a Series 7 license. He holds Series 6, Series 63, and Series 65 licenses, the AWC said.
Freeman sold the NLS products to 14 clients, identified only by their initials in the AWC.
Timeline of Products Sold By Freeman & His Commissions
- June 18, 2008, he sold $42,283 worth to AL, receiving $5,285 in commissions
- July 12, 2008, he sold $323,692 worth to JS, receiving $40,462 in commissions
- July 15, 2008, he sold $150,000 worth to DS and $40,788 worth to RH, receiving $15,000 and $4,079 in commissions respectively
- August 6, 2008, he sold $168,950 worth to TR, receiving $21,119 in commissions
- Sept. 3, 2008, he sold $219,310 worth to WR, receiving $21,997 in commissions
- Sept. 9, 2008, he sold $228,211 worth to SN, receiving $11,402 in commissions
- Nov. 17, 2008, he sold $28,181 worth to KP, receiving $3,523 in commissions
- Jan. 14, 2009, he sold $90,000 worth to SH and $12,000 worth to EH, receiving $11,250 and $1,599 in commissions respectively
- Jan. 15, 2009, he sold $60,820 worth to TS, receiving $7,602 in commissions
- Jan. 27, 2009, he sold $200,000 worth to JS, receiving $20,833 in commissions
- Jan. 28, 2009, he sold $25,000 worth to SG, but the commissions are unknown
- Jan. 30, 2009, he sold $50,000 worth to KN receiving $6,250 in commissions
Freeman’s customers invested in these NLS note agreements based solely in his recommendations. He fraudulently assured them that the products were safe and that the notes would deliver a high return within five years.
According to the AWC, Freeman lacked any factual basis to make these assertions. He had no experience with NLS products and failed to conduct adequate due diligence. Freeman had only been introduced to NLS in 2008 and had never before acted as a broker for promissory notes backed by life settlements.
Despite the fact that he had no reasonable basis to do so, Freeman recommended these NLS note agreements to his customers as a safe investment, the AWC said.
Moreover, Freeman handed out the fraudulent NLS sales literature to these customers. He gave the customers a brochure titled “Powerful Long-Term Wealth Building Opportunities.” This brochure contained unwarranted and misleading statements, the AWC said. It failed to disclose any investment risks, and guaranteed that the products would succeed.
For example, the NLS brochure said the note agreement guaranteed a 10 percent simple interest return after five years, and said that one of the plans “may exceed any known product in the marketplace at this time.”
The brochure also stated that investors’ money would grow by 50 percent in five years, less a $500 annual fee. It said the guaranteed return should outpace inflation, and that the note agreements were safe, easy to understand, and not subject to stock market volatility.
Freeman recommended the note agreements to his customers based on these assertions, but he made no effort to verify these claims before he sold the products, the AWC said.
As a result, he was subject to disciplinary measures. By the time the AWC was executed, Freeman had paid $55,000 of the $508,186 he was ordered to pay in restitution, leaving $453,186 to be paid.
G
Guiliano Law Group
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