Alexander Lloyd Martin of Troy Michigan a stockbroker and former president of CSSC Brokerage Services Inc. has been fined $10,000.00 and suspended from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity based upon Martin consenting to findings that he failed to supervise a registered representative who made unsuitable investment recommendations in a bridge loan offering. Letter of Acceptance Waiver and Consent No. 2016049789602 (June 8, 2018).
According to the AWC, commencing in May of 2010, representatives of CSSC Brokerage Services had taken part in two offerings of CSSC’s parent company, CSSC, Inc. Apparently, one of the offerings consisted of five-year convertible debentures paying eight percent biannually. In the other offering, a May 2014 bridge loan program, investors were to receive promissory notes containing a one year term paying eight percent at maturity coupled with the gifting of CSSC, Inc.’s stock.
The AWC stated that between November of 2012 and March of 2015, those offerings were sold by DS – a registered representative who poorly advised customers concerning the private offerings. During this period, Martin had apparently been responsible for setting forth supervisory protocols so that registered representatives’ sales practices were monitored. Martin was even listed as CSSC, Inc.’s director between 2009 and 2013, which meant he was cognizant of the terms and conditions relating to the bridge loan program and convertible debenture offering. Martin evidently knew that customers were being solicited by DS to make investments in the private offerings.
The AWC stated that Martin failed to supervise the activities pertaining to the 2014 loan program and 2010 bond transactions. In particular, Martin was supposedly cognizant that DS and other stockbrokers had been making recommendations to customers and selling offerings to customers; however, no one at CSSC Brokerage Services Inc. had supervised those transactions and activities. The AWC revealed that Martin neglected to ensure that due diligence was performed on offerings prior to transactions having been effected. Further, Martin neglected to ensure that DS comprehended the risks and nature of the investments that he sold to customers.
In addition, Martin apparently failed to examine the account details for customers, including liquidity, risk tolerances, and objectives for investing, to determine whether DS’s recommendations to customers had been appropriate. Evidently, DS persisted in making investment recommendations, and in certain cases told existing customers to buy more of the offerings. Meanwhile, the suitability of those additional transactions had apparently not been reviewed by Martin to ascertain purchases resulted in customers’ having been illiquid or over-concentrated in the investments. The AWC confirmed that Martin had no regard for how much money had been invested in the offerings by two of the customers
The AWC stated that Martin’s failure to supervise the offerings transactions led seven customers of CSSC Brokerage Services Inc. to purchase the 2014 Loan Program and 2010 Bonds, where DS lacked any foundation for concluding that those offerings had actually been appropriate for investors. FINRA noted that no due diligence had been conducted by DS on those offerings before recommendations had been made by DS. Consequently, DS failed to comprehend the benefits and drawbacks pertaining to offerings as well as the illiquidity and the financial status of CSSC, Inc. when his recommendations had been communicated to customers. Apparently, DS undertook no independent analysis of the offerings and did not factor in customers’ liquidity needs, tolerance for risk, and objectives.
Evidently, interest payments had stopped being made to customers on the bond offering in May 2015. Moreover, CSSC, Inc. was not able to pay customers principal who invested in the bridge loan when principal was due. FINRA found that Martin’s failure to supervise DS was violative of FINRA Rules 2010, 3110 and National Association of Securities Dealers (NASD) Rule 3010.
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