Caught Selling Away

John Dale Ernst of San Diego California a stockbroker formerly employed by Foresters Equity Services Inc. has been fined $5,000.00 and suspended for nine months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity based upon findings that Ernst engaged in private securities transactions involving the sale of Woodbridge promissory notes. Letter of Acceptance Waiver and Consent No. 2018057754401 (Mar. 13, 2019).

According to the AWC, from October of 2015 to November of 20217, Ernst engaged in private securities transactions which were not made known to Foresters Equity Services Inc. by him. Particularly, a total of three customers of the firm and one other investor had been solicited by Ernst to buy a total of $509,000.00 in promissory notes issued by real estate investment fund, Woodbridge. Apparently, Ernst effected the transactions, and accumulated commissions which totaled $35,252.00 for his sales efforts. The AWC reported that the issuer of the customer’s promissory notes investments then filed for Chapter 11 bankruptcy, placing them at risk of investment losses.

The AWC stated that the procedures utilized by Foresters Equity Services mandated that a stockbroker notify the firm and seek out its approval in advance of the stockbroker having any participation in the securities transactions away from the firm. Apparently, Ernst neither notified Foresters Equity Services nor procured the firm’s approval in regard to his private securities transactions. In addition, Ernst had been issued compliance questionnaires by the firm between 2015 and 2017 in which he confirmed that he did not engage in any private securities transaction without the firm’s permission. Moreover, Ernst reportedly confirmed in the firm’s 2016 and 2017 compliance attestations to not having executed any promissory notes sales. FINRA found Ernst’s activities in this regard to be violative of FINRA Rules 2010 and 3280.

This is not the first time that Ernst has been subject of a disciplinary action from a securities regulator. Particularly, Ernst was barred for thirty six months from having a securities agent registration in the State of Wisconsin according to a Consent Order containing findings that Ernst effected the sales of private placement investments without being properly licensed to do so, and without having apprised Foresters Equity Services Inc. In the Matter of John D. Ernst Consent Order to Cease and Desist, Revoking Registration Exemptions, Barring Future Registration And For Disgorgement DFI Case No. 236002 (Jan. 24, 2019).

The Consent Order alleged that the Woodbridge Group of Companies along with Woodbridge Mortgage Investment Fund LLCs were part of a Ponzi scheme engineered by its Chief Executive Officer, Robert Shapiro. Apparently, Shapiro engaged Ernst in this scheme. Woodbridge reportedly claimed to investors that it provided third-party borrowers with hard money loans where the loans were secured by commercial properties. The Order stated that funds from multiple investors were pooled together into investments Woodbridge described as First Position Commercial Mortgages. Apparently, this involved a loan agreement between the investor and WMIF LLC, an executed promissory note, and an assignment of a security interest that Woodbridge maintained in the mortgage for the loan. Supposedly, investors were promised annual rates of return between five percent and nine percent on transactions that spanned between twelve months and eighteen months.

The State of Wisconsin Department of Financial Institutions Division of Securities found Ernst’s unqualified private placement sales, and his engagement in transactions not recorded on Foresters’ records and books, as violative of Wis. Admin. Code § DFI-SEC 4.06(2) and Wis. Stat. § 551.412.

Ernst was discharged by Foresters Equity Services Inc. on February 23, 2018 founded on accusations that Ernst sold away from the firm without its permission and failed to report to the firm that he was subject of an investigation by the State of Wisconsin in regard to his Woodbridge Group of Companies Group, LLC promissory notes sales.

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