William H. Watson III of Brookfield, Wisconsin, a registered representative with Finance 500, was fined $5,000 and suspended from associating with any Financial Industry Regulatory Authority (FINRA) member firm in any capacity for ten business days after consenting to findings that he had participated in securities offerings using marketing materials that were not fair and balanced and for making misleading, unwarranted or unsupported statements. Letter of Acceptance, Waiver and Consent, No. 2013038091901 (Dec. 10, 2015).
According to the AWC, from March 2013 through June 2014, while Watson served as the vice president of corporate finance at Finance 500, he had identified companies that needed financing, and subsequently worked with such companies to structure, market and sell the companies’ securities to customers. The AWC stated that as part of Watson’s sales efforts, he had used or permitted issuers to use marketing presentations at industry conferences for institutional and retail investors that were not fair and balanced; made misleading, unwarranted, or unsupported statements; and failed to disclose the firm’s name and involvement in the offerings. Watson reportedly sent such presentations to retail customers via e-mail and used them on telephone conference calls with retail investors.
Further, Watson had used or permitted issuers to use PowerPoint presentations that contained inadequate risk disclosure and failed to provide balanced presentation of risks and rewards of an investment. In one case with issuer BB, none of the presentations disclosed BB’s accumulated deficits, net losses, or even the fact that BB’s auditor had issued a going concern opinion.
The AWC stated that in another case with issuer CP, the presentation for CP did not mention CP’s negative financial performance or the risk of short term lease amortizations on the issuer’s assets. In a third case, with issuer GE, the presentation did not disclose GE’s lack of revenue or that the issuer did not actually have any current customers. Finally, in the case of issuer SC, none of the presentations reportedly disclosed SC’s negative financial performance. FINRA found that Watson had violated FINRA Rules 2210(d)(1)(A) and 2010 in this regard.
According to the AWC, Watson had used or permitted issuers to use PowerPoint presentations that made misleading, unwarranted or unsupported statements. For example, with issuer BB, the presentations had compared the sales-to-investment ratio of BB (a start up company) to that of well established fast food restaurants, which FINRA deemed unwarranted considering the difference in size of the companies and given that the types of businesses were incongruent. In another case, the AWC indicated that the presentation for CP had included information about a $10,000,000 offering of equity or convertible debt that failed to accurately describe the size or terms of the offering with which Finance 500 was involved with – and which FINRA therefore deemed unwarranted. Other presentations for other issuers included statements such as “revolutionizing” the market which FINRA deemed exaggerated, and statements regarding forecasting revenue growth which FINRA deemed unsupported. FINRA found Watson to have violated FINRA Rules 2210(d)(1)(B) and 2010 in this regard.
The AWC indicated that none of the presentations for issuers BB, CP, or GE had disclosed Finance 500’s name, or even described the relationship between Finance 500 and the issuer. FINRA found that Watson had violated FINRA Rules 2210(d)(3) and 2010 in this regard.
Firms and individuals, not surprisingly, are prohibited from unauthorized use of customer funds, borrowing of a customer’s securities or funds, forgery, non-disclosures or misstatements of material facts, and various deceptions and manipulations. Such conduct can also be found to violate criminal and other civil laws, and be subject to sanction from the federal and state government bodies.
Public disclosure records via FINRA’s BrokerCheck reveal that William H. Watson III has been subject to eleven disclosure incidents. On November 1, 1991, Watson had settled a customer dispute for $50,000 after the client lodged a complaint for rescission in a securities transaction, and alleged fraud and deceit, and breach of fiduciary duty. On December 31, 1991, Watson had settled a customer dispute for $100,000 after a customer alleged fraud, breach of fiduciary duty, aiding and abetting gross misrepresentation. On March 10, 2015, Watson settled a customer dispute for $15,000 after a customer alleged that transactions were unsuitable.
On July 17, 1995, Watson settled a customer dispute for $27,500 after a customer alleged that transactions were not suitable. Watson became subject to a pending customer dispute on June 7, 2015, where the customer is requesting $50,000 after alleging a faulty transaction occurring in January 2014.
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