Kenneth J. Mathieson, of New York, New York, a stockbroker with Morgan Stanley, was charged by Financial Industry Regulatory Authority (FINRA) Department of Enforcement in a Complaint alleging that Mathieson engaged in private securities transactions, outside business activities, and false compliance certifications. Department of Enforcement v. Mathieson, No. 2014040876001 (Mar. 3, 2016).
According to the Complaint, from September 2010 through March 2012, Mathieson had engaged in several private securities transactions involving himself, his family, and his firm’s investors pertaining to the stock of Aspen University, Inc. The Complaint indicated that in 2010, Mathieson discovered Aspen, a private online educational institution, via a friend who had served as a member of the board of directors for Aspen. The Complaint alleged that Mathieson served as Aspen’s strategic advisor and ultimately assumed roles of an officer or director, where he worked closely with Aspen’s owner, PS. The Complaint stated that in March 2012, a penny stock company, Aspen Group Inc. acquired Aspen through a reverse merger in return for over $209,000,000 in stock, resulting in Aspen Group’s stock becoming publicly traded.
As the Complaint indicated, Mathieson sought out Morgan Stanley’s permission to make a $100,000.00 investment in Aspen, indicating that he would only be a passive investor. Mathieson reportedly indicated to Morgan Stanley that he would not be soliciting Morgan Stanley’s clients to invest in Aspen, and that he had not and would not advise Aspen concerning investment decisions, or participate in management of Aspen’s business. The Complaint indicated that Mathieson received approval to invest in Aspen accordingly, and required him to seek approval if further investments in Aspen were made.
The Complaint indicated that over the following twenty months, Mathieson effected fourteen additional purchases in Aspen, for himself and his family, which had totaled over $96,000.00. Mathieson reportedly never notified his firm regarding such additional investments, nor did he receive permission by Morgan Stanley to make them. The Complaint stated that Mathieson prompted $75,000.00 in securities sales for Aspen through two investors, MK and SS. Mathieson, according to the Complaint, never notified Morgan Stanley nor received approval for participation in such transactions.
The Complaint further indicated that Mathieson started to participate in the management of Aspen, and assumed unofficial roles of director or officer. Mathieson reportedly provided substantial strategic insight to Aspen, and had taken an active role in Aspen’s 2011 merger plans involving Educational Management Group as well as a 2012 reverse merger concerning Aspen; as well as the purchase and sales of PS’s shares. Mathieson reportedly never disclosed his participation of transactions regarding Aspen to Morgan Stanley. FINRA alleged that Mathieson’s conduct in this regard is violative of FINRA Rule 2010 and NASD Rule 3040.
Additionally, The Complaint stated that when Mathieson finally requested that he be able to serve as director and strategic advisor for Aspen in December 2010, Morgan Stanley denied his request and instructed him to discontinue or refrain from such outside business activity.
According to the Complaint, Mathieson ignored Morgan Stanley’s instructions and continued to participate in Aspen’s business and management, where he would: engage in business development matters; take part in hiring employees; participate in Aspen’s board of director meetings; advise Aspen concerning other companies; host meetings; and correspond with individuals and companies via thousands of e-mails concerning Aspen.
Mathieson also reportedly participated in raising money for Aspen via private placements of securities among other methods, including: arranging meetings in 2011 for prospective investors who ultimately invested in Aspen; raising at least $250,000.00 for loans to provide Aspen with working capital during the time in which Aspen was in the process of merging with Educational Growth Corporation; furnishing thousands of dollars in legal fees in return for stock; and corresponding with Aspen concerning disbursements and other types of funding associated with financing.
The Complaint stated that Mathieson’s conduct of serving in the aforementioned functions for Aspen constituted outside business activities in violation of NASD Rule 3030, FINRA Rule 3270, and FINRA Rule 2010.
Finally, the Complaint alleged that in 2011, Mathieson falsely attested to Morgan Stanley, via compliance certifications, that he had not been participating in activities that required disclosure, and falsely attested that he had not been engaging or otherwise been responsible for private placement transactions during his association with Morgan Stanley. FINRA alleged that in light of Mathieson’s considerable participation in Aspen, his certification was false and that Mathieson was in violation of Rule 2010 as a result.
Public disclosure records reveal that Mathieson has been subject to four disclosure incidents. On January 31, 2002, Mathieson settled a customer dispute for $7,500.00 amid allegations of misrepresentation, fraudulent inducement; failure to supervise; and breach of fiduciary duty. On March 10, 2014, Morgan Stanley terminated Mathieson amid allegations of his aforementioned unapproved private securities transactions and outside business activities.
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