Timothy Steven Dembski of Buffalo, New York, a stockbroker for Mid Atlantic Capital Corporation, was barred by Financial Industry Regulatory Authority (FINRA) in connection with an Office of Hearing Officers Order Accepting Offer of Settlement containing findings that Dembski made fraudulent omissions and misrepresentations to investors, engaged in improper loans from customers, and falsified testimony in a FINRA investigation. Department of Enforcement v. Dembski, et al., No. 2013036168701 (Feb. 3, 2016).
According to the Order, between March 1, 2012 and September 1, 2012, two retail customers of Mid Atlantic Capital Corporation were fraudulently induced by Dembski to make in investment in Prestige Wealth Management Fund, LP. The Order stated that Dembski engaged in omissions and misrepresentations regarding Prestige, a speculative growth Fund, leading the customers to believe that the Prestige Fund contained certain attributes which could afford investors protection against loss.
Dembski, according to the Order, told the customers the Fund’s stop-losses and other risk protections were incorporated via a computer algorithm. Yet, the Fund was controlled entirely via Chief Investment Officer, SMS, who was not required to implement the algorithm. Investors, according to the Decision, were not made aware of this. The Fund subsequently lost in excess of eighty percent of its value in December 2012. Yet, the Order indicated that Dembski previously informed his customers that via the stop-loss element, the Fund’s losses would not be in excess of one percent.
According to the Order, prospective investors received a confidential private placement memorandum regarding Prestige that was found to have contained misrepresentations concerning the professional expertise of SMS. The Order indicated that no portfolio of securities was ever managed via SMS, despite the private placement memorandum stating that a $500,000,000 portfolio was co-managed by them. Additionally, the Order indicated that there was no investment company that SMS was ever the vice president of, despite the private placement memorandum indicating SMS was a vice president regarding an investment company based in New York.
The Order indicated that customers who Dembski recommended the Fund to were deemed unaccredited by FINRA, in that such individuals never invested in hedge funds prior to their investment, surrendered variable annuities or utilized retirement funds to invest in the Fund, and had only some degree of investment experience.
According to the Order, Dembski knew about the private placement memorandum’s material omissions and misrepresentations. Considering that Dembski previously working with SMS, FINRA claimed he was aware that his statements concerning SMS were false. FINRA ultimately found that Dembski had committed a willful violation of Exchange Act Section 10(b), Rule 10b-5, and additionally FINRA Rules 2010 and 2020.
Public disclosure records via FINRA’s BrokerCheck indicate that Dembski has been subject to three disclosure events. On March 1, 2013, he became subject to a pending customer dispute, where the customer has requested $35,000 in damages after alleging hedge fund investments were unsuitable, and that the product was represented inaccurately. On December 10, 2014, Dembski was subject a Cease and Desist Order from the United States Securities and Exchange Commission in connection with the aforementioned allegations, in which the SEC alleged violations of Section 10(b) of the Exchange Act and Rule 10b-5, Securities Act Section 17(a), and Investment Advisers Act Sections 206(1) and 206(2). In the Matters of Reliance Financial Advisors, LLC, et al., File No. 3-16311 (Dec. 10, 2014). FINRA filed a parallel Complaint against Dembski on December 10, 2014, leading to the aforementioned Order barring Dembski.
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