Cadaret Grant a securities broker dealer headquartered in Syracuse New York has been censured and fined $200,000.00 by Financial Industry Regulatory Authority (FINRA) based on findings that Cadaret Grant failed to supervise its stockbrokers who engaged in private securities transactions one or more of which was a Ponzi scheme. Letter of Acceptance Waiver and Consent No. 2018057940801 (July 1, 2020).
According to the AWC, between September of 2012 and March of 2017, a Ponzi scheme had been orchestrated by a stockbroker of Cadaret Grant named Steven Pagartanis (“SP”). The AWC stated that customers were solicited by Pagartanis for investments in three companies that he owned and operated. The stockbroker falsely promised customers investment returns ranging between four and eight percent. Customers were not told that the companies that they were investing in had been inoperative and that they had no revenues.
Two of the companies whose investments were solicited by Pagartanis had names which were similar to legitimate publicly traded companies. This made it seem to Pagartanis’ customers that his companies were legitimate. Customers were persuaded to hand funds to Pagartanis which were then placed into bank accounts that Pagartanis controlled. Those funds were used to pay prior investors and to pay for Pagartanis’ personal expenses.
FINRA stated that the customers who fell victim to SP’s scheme were lied to by him for years concerning their investments. They were issued bogus statements relating to the Ponzi schemes and provided funds every now and then to keep them from complaining.
The AWC stated that Cadaret Grant failed to pick up on the red flags relating to Steven Pagartanis’ actions which would have revealed his fraud. FINRA indicated that a $725,000.00 investment was made by a customer in two of the companies ran by Steven Pagartanis based on the belief that the customer would generate eight percent returns. FINRA revealed that three checks from Pagartanis’s companies which had reflected the customer’s return on investment had been placed into a brokerage account at Cadaret Grant. These checks created a red flag since there were payments coming from the same address with signatures that resembled Pagartanis’s signature. The company overlooked this and failed to investigate those checks after the customer contacted the firm regarding deposits relating to the sales of property.
FINRA also contacted Cadaret Grant in May of 2015 in regard to eleven liens and judgements that SP did not disclose through his Uniform Application for Securities Industry Registration. A report obtained by Cadaret Grant in August of 2015 showed one of the companies that SP controlled. The AWC stated that SP’s association with this company was not reviewed. Pagartanis was not questioned by Cadaret Grant as to his role with the company.
The AWC also noted that the attorney for the customer who invested $725,000.00 with Pagartanis had contacted Cadaret Grant specifically pertaining to an investigation into SP’s direct investment transactions. The attorney was never probed by Cadaret Grant pertaining to Pagartanis’s activities or why there was an investigation. Even after Cadaret Grant compliance personnel called upon Pagartanis to discuss the customer’s account, it failed to follow up with Pagartanis for his information. Pagartanis’s Ponzi scheme persisted between the time that the attorney contacted Cadaret Grant and the time of Pagartanis’s termination – which came as a result of Cadaret Grant’s receipt of the customer’s complaint alleging a Ponzi scheme.
The AWC also stated that Pagartanis’s e-mails were at one point requested by Cadaret Grant as part of a branch inspection but they were not provided by the stockbroker. Pagartanis also never provided e-mails to Cadaret Grant as required under its written supervisory procedures. Cadaret Grant never followed up on SP’s failure to furnish those e-mails. The stockbroker was not probed as to why he did not comply.
FINRA found that Cadaret Grant’s failure to supervise private securities transactions as violative of FINRA Rules 2010 and 3110 as well as National Association of Securities Dealers (NASD) Rule 3010.