David Newman, of Duncan, Oklahoma, a stockbroker with First Western Securities, was fined $15,000.00 and suspended for fifteen months from associating with any Financial Industry Regulatory Authority (FINRA) member firm after consenting to findings that he engaged in unauthorized private securities transactions. Letter of Acceptance, Waiver and Consent, No. 2015046649901 (May 20, 2016).
According to the AWC, in 2012, Newman made arrangements with insurance agent, Bobby Collins, whereby Newman would solicit interest from clients to invest in Collins’ promissory notes in return for Collins compensating Newman ten percent of the investors’ purchase amounts (for those investors Newman introduced to Collins). Pursuant to the agreement, between 2012 and 2015, Newman presented Collins with a retired couple and other investors that were interested in notes purchases through Collins.
The AWC stated that the aforementioned individuals invested a minimum of $895,000.00 with Collins, which allowed Newman to rake in commissions of $89,500.00. The AWC reported that Newman, at least in one case, recommended that a customer invest in Collins’ notes.
According to FINRA, Newman failed to perform the requisite due diligence on the notes offered through Collins and failed to review Collins’ operations. Newman allegedly failed to review the solvency and financial statements of Collins’ business, or ascertain the validity of the revenue that Collins claimed to be generating through the notes sales. Newman reportedly relied upon nothing more than the misrepresentations made by Collins concerning the notes.
According to the AWC, for several years, Collins concocted a scheme to generate funds from investors by informing them that the funds would be used for advertising and business development associated with his insurance business. Allegedly, investors who purchased the notes were informed by Collins that they would be repaid within a set period through installment payments. Unbeknownst to investors, Collins utilized merely two percent of investors’ funds for the intended purpose.
The AWC stated that by 2015, Collins owed investors more than $1,000,000.00, but only had $40,000.00 for repayment. Collins apparently owed investors estimated payments of $100,000.00 per month, yet he had not generated commissions which remotely allowed him to cover such payments. The AWC indicated that Collins eventually started taking money from new investors to repay existing investors.
The SEC eventually charged Collins with engaging in a fraudulent investment scheme designed to prey upon the elderly investor base. According to the AWC, since 2010, at least thirty-six investors made an aggregate of $4,600,000.00 in purchases based upon Collins’ false promises. Collins settled with the SEC, in which he was fined $160,000.00 and disgorged of $573,234.00 in commissions.
According to FINRA, Newman was prohibited from engaging in the aforementioned private securities transactions, as he had not notified his firm in advance nor received written approval from his firm to engage in such. FINRA found that Newman’s conduct in this regard was violative of NASD Rule 3040 and FINRA Rule 2010.
Apparently, Newman also falsely informed First Western’s compliance personnel that he never participated in private securities transactions. FINRA found that Newman’s false statements in this regard was violative of FINRA Rule 2010.
Finally, FINRA found that Newman violated FINRA Rules 2111 and 2010 by way of making unsuitable recommendations to at least one of the aforementioned customers regarding the notes purchases. FINRA alleged that by way of Newman failing to conduct reasonable due diligence, he did not have a legitimate basis for making such recommendation.
Public disclosure records reveal that that Newman has been subject to seven disclosure incidents. On January 12, 2004, a customer lodged a complaint against Newman and alleged unsuitability and misrepresentation.
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