Lorraine Annette Conaway (also known as Lorraine Annette Espinoza) of Tustin California a stockbroker formerly employed by USA Financial Securities Corporation has been fined $10,000.00 and suspended from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity based upon consenting to FINRA’s findings that Conaway engaged in undisclosed outside business activities and failed to be forthcoming to the firm when questioned about her activities. Letter of Acceptance Waiver and Consent No. 2016048484001 (May 2, 2018).
According to the AWC, Tycon Properties was created in 2012 by Conaway and her husband, James Conaway, and characterized as an outside business activity. Evidently, two-thirds of Tycon was owned by Conaway and her husband; while one-third was owned by TB. Apparently, the business was managed by TB.
Evidently, individuals who were considering buying investment rental properties had been referred by Conaway and her husband to other real estate vendors through Tycon. Those referrals were reportedly intended to result in rental property sales by vendors. Apparently, the referrals Conaway made had generated sales, which caused the vendors to pay Conaway a referral fee. Evidently, Conaway steered some of the firm’s customers into purchasing the investment properties.
The AWC additionally stated that from 2013 to 2015, one third of the referral business generated by Tycon involved GK – who controlled a Saint Louis, Missouri based vendor. Particularly, the referrals were for GKs program involving the sales and rehabilitation of distressed rental properties in Saint Louis. As a result, between 2013 and 2015, Tycon reportedly accumulated referral fees totaling $450,000.00 from the vendor company controlled by GK. The AWC stated that Tycon reportedly referred at least thirty-five individuals to buy properties through that vendor company.
The AWC revealed that customers eventually began to complain about GK and the real estate program he controlled. Particularly, the customers claimed that the properties underperformed, if they performed at all. Customers additionally claimed that GK failed to appropriately rehabilitate the properties; customers paid out of pocket for rehabilitation on the properties. Evidently, customers were dissatisfied because of the shoddy work GK performed; the untimeliness of the rehabilitation projects; and that GK failed to pay expenses, utilities and taxes during the period that the properties were rehabilitated.
The AWC detailed that Conaway did not part ways with GK following the customer’s complaint. Rather, Conaway expanded her activities to include the monitoring of GK’s projects and negotiation of resolutions between customers of Tycon who dealt with GK. Specifically, Tycon arranged for the repurchasing of rental properties that had not performed. Apparently, Conaway also set up a business, STL100, to acquire the properties from customers who were dissatisfied, and established another business, Ten Vest, to purchase other properties.
The AWC stated that in September of 2015, during the time that Conaway untimely disclosed information to USA Financial Securities Corporation about Tycon being an outside business activity, the firm had not been provided any information concerning Conaway’s involvement with STL100 or Ten Vest. Moreover, Conaway reportedly lied to the firm by claiming that Tycon was not an investment-based outside business activity. FINRA stated that Conaway merely referred to Tycon as source to generate referral compensation rather than explain the investment-related real estate activities and the transactions involving repurchasing or working out other arrangements with dissatisfied customers.
The AWC stated that Conaway failed to provide USA Financial Securities Corporation with accurate information concerning Ten Vest and STL 100. Consequently, the firm was unable to determine whether those activities could potentially harm investors or otherwise interfere with Conaway’s responsibilities with customers of the firm. In response to the firm’s additional probe into those activities, Conaway evidently failed to inform the firm about, among other things: Conaway utilizing STL100 to enter into real estate transactions with customers of the firm; Conaway attempting to secure securities business from the customers; Conaway utilizing Tycon to effect five securities transactions with customers of USA Financial Securities Corporation; and Conaway utilizing Ten Vest and STL100 to buy properties from customers. Consequently, FINRA stated that Conaway’s conduct was violative of FINRA Rules 2010 and 3270.
Conaway was discharged from USA Financial Securities Corporation supported by accusations of Conaway taking part in financial transactions with customers outside the firm’s auspices; failing to conform to the firm’s procedures regarding outside business activities; and failing to be forthcoming in the firm’s investigation into her activities.
