Halcyon Cabot Partners, Ltd. was expelled from Financial Industry Regulatory Authority (FINRA) membership, while two of its principals, Ronald Mark Heineman and Michael Trent Morris, were permanently barred from association with any FINRA member in any capacity per an Order Accepting Offer of Settlement containing findings of widespread violations of securities laws including a scheme to defraud investors. Dept. of Enforcement v. Halcyon Cabot Partners, Ltd. No. 2012033877802 (Oct. 6, 2015).
According to the Order, in May of 2012, the Firm, along with Heineman, Morris, and another now permanently barred Halcyon RR, Craig L. Josephberg, engaged in a scheme to conceal discounts provided to Socius Capital Group, LLC (a venture capital firm), when purchasing a private placement in a cancer drug development company, Cell Therapeutics, Inc. Halcyon was found to have engaged in a sham agreement to act as Cell Therapeutics placement agent, whereby Halcyon would receive a 5% fee (amounting to $1M per $40M tranche offer), and where in separate sham agreement, the Firm funneled the fee back nearly the full 5% fee back to Socius Capital Group, LLC. The Order indicated that this conduct violated Section 10(b) of the Securities Exchange Act of 1934, Rule 10b(5), and FINRA Rule 2010.
Additionally, the Order indicated that Morris, acting on behalf of Halcyon, engaged with Felix Investments, LLC (now an expelled FINRA firm) to obtain commissions from both purchasers and sellers in private securities transactions (conduct that ultimately created a conflict of interest). The Order stated that Felix would represent buyers, while Halcyon would represent sellers. Unbeknownst to sellers, Halcyon was in a secret arrangement with Felix to act as Felix’s agent and channeled commissions obtained from the sellers to Felix – an act which put Halcyon and Morris in violation of FINRA Rule 2010.
The Order further stated that from February of 2011 to March of 2013, Morris and other individuals at Halcyon disguised Josephberg’s securities sales in states in which Josephberg was not registered via willfully falsifying Halcyon’s records – an act which led Halcyon and Morris to violate FINRA Rules 2010 and 4511 along with NASD Rule 3110. According to the Order, Josephberg, acting on behalf of Halcyon, proceeded to engage in excessive trading and churning in two of the Firm’s customer accounts – violating Rule 10b-5, FINRA Rules 2010, 2111, 2010, and NASD Rule 2310.
Halcyon and Morris, according to the Order, were found to have violated FINRA Rules 2010 and 3310(a) for failing to establish AML programs. Finally, the Order stated that the Firm, along with Heineman and Morris failed to establish adequate supervisory systems and WSP’s in order to supervise Halcyon staff, including the failure to take reasonable steps in supervising the excessive trading, churning, and unauthorized trading activity – resulting in FINRA Rule 2010 and NASD Rule 3010 violations.
Public disclosure records reveal that Halcyon Cabot Partners, Ltd. has been subject to at least two arbitration events and another prior regulatory event concerning reporting misconduct. On November 14, 2014, the Firm resolved an arbitration case where a party was awarded $25,000 after alleging the Firm committed a breach of fiduciary duty, churning, manipulation, misrepresentation, omission of facts, unauthorized trading, and trading disputes. FINRA Arbitration Case Number 12-02031 (Nov. 14, 2014). In October 4, 2012, the Firm resolved an arbitration case where a party was awarded $441,376.92 after alleging the Firm committed a breach of fiduciary duty, misrepresentation, omission of facts, unauthorized trading, breach of contract, failure to supervise, and account related negligence. FINRA Arbitration Case Number 12-03307.
Public disclosure records via FINRA’s BrokerCheck reveal that Morris has been subject to at least three customer disputes involving claims of misconduct in which damages were awarded to customers. On January 12, 1996, Morris was ordered to pay $8,400.00 to a party after a claim of churning, suitability misconduct, and unauthorized trading. On April 23, 1997, Morris was ordered to pay $12,000.00 to a party after a claim of suitability misconduct, misrepresentation, failure to supervise, and breach of fiduciary duty. On September 17, 2012, Morris was ordered to pay $325,000 to a party for unauthorized trades. Public disclosure records also reveal that Morris was subject to two investigations concerning general supervisory issues and failure to disclose tax liens.
Public disclosure records via FINRA’s BrokerCheck reveal that Heineman has been subject to at four regulatory issues. In January 26, 1989, Heineman was subject to NASD censure and fine of $3,000 for actions in violation of Article III Section 1 of the Rules of Fair Practice while employed with Apple Financial Corp. On July 23, 2001, NASD suspended Heineman for two months and fined him $50,000 in connection with allegations that Heineman terminated an IPO without justification, causing disruptions in the marketplace, denying the company its proceeds, and burdened members and customers whose trades had to be unwound and cancelled. In July 1, 2004, the NASD suspended and fined Heineman for alleged violations of Section 17(b) of the Securities Act of 1933, NASD Conduct Rules 2110, 2210, and 3010, for failing to maintain written supervisory procedures to address standards and requirements that should be met in preparation of a research report. On July 11, 2006, Heineman was fined $2,500 and agreed not to serve as a designated Illinois principal for two years (conduct not disclosed). Finally, on October 24, 2013, public disclosure records reveal Heineman was under investigation for a general supervision issue.
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.
Section 10(b) of the Exchange Act makes it unlawful “to use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.”
Four elements are necessary to show in finding a violation of Section 10(b) of the Exchange Act, Rule 10b-5: 1) misrepresentations and/or omissions were made; 2) misrepresentations and/or omissions were material; 3) representations and/or omissions were made with requisite intent (e.g. scienter), and 4) misrepresentations and/or omissions were made in connection with the purchase or sale of securities.
Guiliano Law Group
If you have been the victim of securities fraud and you have a complaint, you should consult with an attorney. The practice of Nicholas J. Guiliano, Esquire, and The Guiliano Law Group, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.