George Johnson, of Chicago, Illinois, a stockbroker for Meyers Associates, L.P., was permanently barred from associating with any Financial Industry Regulatory Authority (FINRA) member firm in any capacity in connection with an Order Accepting Offer of Settlement containing findings that Johnson committed fraudulent market manipulation; fraudulent omission of material conflicts concerning purchases/sales of a security; spurious sales and research report dissemination; the falsification of the firm’s records; and unauthorized disclosures of material non-public information in connection with purchase/sale of securities. Department of Enforcement v. Johnson, No. 2013035533701 (Feb. 18, 2016).
According to the Order, from May 15, 2012 through May 24, 2012, Johnson, while acting in his capacity of the firm’s stockbroker and banking representative, had manipulated IceWeb, Inc. common stock via solicitation of customers to both buy and sell the security via matched orders. The issuer reportedly marketed and managed custom built appliances, software for government agencies, and manufactured the products accordingly. FINRA considered Johnson’s conduct to be at least reckless, if not intentional. FINRA found Johnson’s acts to be in violation of Securities Exchange Act of 1934 Section 10(b), Rule 10b-5, as well as FINRA Rules 2010 and 2010.
The Order reported that Johnson became familiar with IceWeb in 2010 via his employer’s role as the issuer’s placement agent of their stock, called IWEB. Johnson reportedly effected transactions for IWEB as broker of the issuer in private securities offerings, while also recommending to the firm’s customers the purchase of IWEB via open market transactions. Johnson engaged in this practice through close association with the issuer’s chief executive officer and director of compliance, JS. JS reportedly acted as IWEB’s investor consultant.
The Order stated that while Johnson had purchased the IWEB shares for customers, IWEB had reportedly accumulated a $34,300,000.00 deficit. IBEW reportedly had substantial problems with finances and operations, and was found by FINRA to have had inadequate cash flows in order to sustain the business, causing the firm to rely upon the short-term loans and equity offerings for relief.
The Order indicated that Johnson committed market manipulation given two circumstances. Johnson reportedly would benefit both through receiving significant placement fees via facilitation of the offering, and additionally through the sale of his and his spouse’s stock to firm customers. Johnson apparently knew about IWEB’s intent of utilizing a public equity offering after the stock price was raised, and that his firm was utilized as the issuer’s placement agent. The Order stated that between Johnson and his spouse, they both owned an estimated 1,520,000 shares of the issuer’s stock, while customers owned an estimated 9,377,681. FINRA found that Johnson had committed a violation of Securities Act of 1934 Section 10(b), Rule 10b-5, as well as violated FINRA Rules 2010 and 2020 in this regard.
FINRA found that from February through May of 2012, Meyers’ customers had received sales and research materials regarding IWEB via Johnson that FINRA found to be exaggerated, misleading, lacking of material information that should have been disclosed, and consisting of claims which were unsupported regarding the company. FINRA found that Johnson had violated Rule 2010 in this regard.
Johnson also kept customers’ in the dark concerning another issuer, Snap Interactive, Inc., with respect to personal holdings in the issuer that were owned by him and his spouse. Johnson was found to have committed willful violations of Securities Act of 1934 Section 10(b), Rule 10b-5, as well as violated FINRA Rules 2010 and 2020 for failing to disclose the aforementioned material conflicts of interest.
The Order also reported that Johnson had disclosed information which was material and nonpublic with respect to issuer, ChromaDex Corp. The issuer reportedly never provided permission to Johnson for him to disseminate this information, nor did the issuer receive any agreement from the customers’ in receipt of such information indicating that they would refrain from engaging in trading of ChromaDex Corp. stock and keep confidential the issuer’s aforementioned material and nonpublic information. FINRA found that Johnson violated Rule 2010 in this regard.
Finally, the Order stated that Johnson attempted to conceal state registration requirement violations after he reportedly submitted to his firm over one hundred memoranda as well as five account applications seemingly misidentifying the broker of record. The Order indicated that the firm violated FINRA Rules 2010 and 4511, as well as Securities and Exchange Commission Rules 17a-3(a)(6) and 17a-3(a)(17)(i)(A) as a result of such conduct.
Public disclosure records reveal that Johnson has been subject to at least ten disclosure incidents. On June 12, 1997, Johnson settled a customer dispute for $80,000.00 after the customer alleged omissions of fact and a suitability violation. On February 5, 1998, Johnson settled a customer dispute for $100,000.00 after the customer alleged the account related breach of contract as well as misrepresentation. On September 10, 1998, Johnson settled a customer dispute for $15,000.00 after the customer alleged fraud, negligent representation, and breach of fiduciary duty.
On June 1, 2004, Johnson settled a customer dispute for $15,481.42 after the customer alleged unauthorized trades took place in his account. On June 2, 2006, a party was awarded $195,728.11 against Johnson after alleging breach of fiduciary duty, inappropriate activity and excessive trading pertaining to various stocks. Johnson, on May 22, 2007, settled a customer dispute for $2,500.00 after the customers alleged unauthorized trading and unsuitable transactions. On October 30, 2015, Johnson became subject to a pending customer dispute in which a customer is requesting $2,600,000.00 after alleging violations of suitability.
Public disclosure records further reveal that Johnson was subject to two regulatory events other than the aforementioned Complaint. In August 26, 1994, he was sanctioned by the National Association of Securities Dealers and fined $2,500 after consenting to findings that he mishandled an initial public offering. On June 30, 2006, Johnson was fined $1,000.00 by the Indiana Secretary of State, Securities Division, per an Order containing findings that Johnson committed certain violations of Indiana Securities Act, Ind. Code 23-3-1. On April 8, 2015, Johnson was named in a Complaint containing the allegations pertaining to the aforementioned Order Accepting Offer and Settlement. Department of Enforcement v. Johnson et al., No. 2013035533701 (Apr. 8, 2015).
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