Steven Mark Newman, of Houston, Texas, a stockbroker with E*Trade Securities LLC, was fined $5,000.00 and suspended from associating with any Financial Industry Regulatory Authority (FINRA) member firm in any capacity per a FINRA Office of Hearing Officers’ Order Accepting Offer of Settlement containing findings that Newman engaged in unauthorized outside business activities. Department of Enforcement v. Steven Mark Newman, No. 2014040883401 (Sept. 19, 2016).
According to the Order, in 2013, Newman created a business entity, Sportspicks, which was designed to facilitate sports betting, and provide information pertaining to sports handicapping. The Order stated that in March of 2013, Newman recommended that JH, a former customer of Newman’s, invest in Sportspicks. Consequently, JH received a fifty percent stake in the company after handing over $50,000.00 for the investment.
The Order indicated that Sportspicks was eventually incorporated by Newman in Texas, where he became the manager and registered agent of the company. Newman reportedly became a registered representative for E*Trade in April of 2014, while he still managed Sportspicks. According to the Order, Newman never disclosed to E*Trade that he was involved with Sportspicks, despite his firm’s policies calling for such to be reported as an outside business activity.
The Order further stated that Newman also became a managing member of an entity, 700 Plus, which was an entity who provided services to repair credit. Newman reportedly owned five percent in the firm. Apparently, in April of 2013, Newman reached out to JH again to recommend an investment in 700 Plus, which JH eventually did by handing over $325,000.00 for a twenty-five percent stake in the firm. The Order stated that Newman never notified E*Trade about his involvement in 700 Plus. FINRA found that Newman’s failure to properly disclose his outside business activities with E*Trade was violative of FINRA Rule 2010 and 3270.
FINRA further found that that Newman made several false statements in his Form U4 upon applying with E*Trade. Particularly, Newman claimed that he had not been named in a pending civil litigation regarding sales practice violations, when in fact he was sued by JH prior to responding. Newman also falsely reported that he was not accused of conversion, and not subject to a claim of more than $5,000.00.
Factually, according to the Order, JH filed a complaint against Newman, in which JH sought $50,000.00 in damages in connection with allegations that Newman engaged in conversion and fraud with regard to Sportspicks. JH, in his Complaint, also alleged that Newman informed him that Sportspicks and 700 Plus were profitable enterprises and had existed for several years. Newman allegedly failed to indicate to JH that Newman had just created Sportspicks one day prior to JH’s investment, and was not actually profitable. FINRA found that Newman’s false statements to his firm regarding JH’s Complaint was violative of FINRA Rule 2010, 1122, and Section 2(c) of FINRA By-Law Article V.
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