LBMZ Securities, Inc., a brokerage firm headquartered in Chicago, Illinois, has been censured and fined $65,000.00 by Financial Industry Regulatory Authority (FINRA) by consenting to findings that the firm failed to adequately conduct due diligence relating to private placement offerings, failed to supervise its communications to customers, and disseminated faulty advertisements to customers. Letter of Acceptance, Waiver and Consent, No. 2016048230001 (Dec. 6, 2017).
According to the AWC, the firm’s registered principal was responsible for conducting due diligence, and was limited in terms of his private placement and investment banking background. The principal reportedly undertook insignificant measures to conduct an independent analysis or investigation about the information that issuers of private placements provided them. The firm evidently authorized the securities offerings.
The AWC stated that on April 17, 2015 and May 4, 2015, two of the firm’s customers made investments in an offering by Ascenergy that had been facilitated by LBMZ. Subsequently, on October 13, 2015, Ascenergy and its principal became subject of a complaint lodged by the Securities and Exchange Commission containing accusations of securities fraud in reference to Ascenergy’s private placement offering.
The AWC stated that a final judgment was entered by the Nevada District Court that disgorged the principal and Ascenergy of $5,112,473.00 worth of profits. Additionally, the firm was fined $1,550,000.00 and its principal fined $320,000.00 in settling the SEC’s accusations of their misconduct. The AWC stated that LBMZ’s investment banking division had been discontinued, with the principal involved in the Ascenergy offering having been terminated in September of 2016. FINRA found that the firm’s conduct was violative of FINRA Rule 2010 and 3110.
The AWC additionally stated that LBMZ misled investors in reference to the Ascenergy private placement offering. Particularly, the AWC stated that the principal of the investment banking division sent e-mails containing links to the issuer’s power point document concerning to the offering. FINRA stated that both the e-mail and issuer’s power point document contained misleading statements about the future and past performance of Ascenergy, and failed to disclose that the investment in Ascenergy was risky and illiquid. Evidently, the e-mail about Ascenergy was transmitted to 124,000 people.
The AWC revealed that the chief compliance officer of LBMZ authorized the e-mails to be sent, in which he depended on the principal’s remarks about how accurate the representations concerning Ascenergy were. The AWC stated that the representations had not reviewed by the firm in a sufficient manner, which led the communications containing misstatements to be transmitted. FINRA found the firm’s conduct in that regard to be violative of FINRA Rules 2010, 3110 and 2210.
This is not the first time that the firm has been cited by FINRA for misconduct. Particularly, in January of 2017, LBMZ had been fined $120,000.00 and censured by FINRA by consenting to findings that the firm participated in private placement activities despite failing to gain authorization from FINRA, and failed to create and maintain supervision systems and written supervisory procedures to make sure that communications with prospective and actual customers were compliant with the regulations and securities laws. Letter of Acceptance, Waiver and Consent, No. 2014041947501 (Jan. 19, 2017).
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