Brett Frum of Tarpon Springs, Florida, a stockbroker associated with KCD Financial Inc., is the subject of a customer intitiated, investment related FINRA securities arbitration claim seeking damages of between $1 million and $5 million from the sale of “risky private placements.” FINRA Arbitration No. 25-01909. No additional information appears to be publicly available.
The subject of a private placement is only limited by one’s imagination, and can include real estate, common stock, warrants, bonds, hedge fund interests, orange groves, timberland, tax liens, structured settlements, Ponzi schemes, or simply fraudulent promissory notes or promises to pay by your broker.
A private placement is generally the offer or sale of unregistered securities that are not the subject of a registration statement filed with the United States Securities and Exchange Commission pursuant to the Securities Act of 1933. As a general matter, a security is an investment of money, with the expectation of profits, solely from the efforts of others. Also, as a general matter the sale of unregistered securities is a crime, unless the sale is exempt under Sections 3(b) or 4(2) of the Securities Act of 1933, or Regulation D as promulgated thereunder.
In some cases however investors do not purchase private placements on their own initiative, investors are sold or recommended private placements by their stockbrokers or investment professionals, sometimes with, or most often without the knowledge or approval of their brokerage firm. In many cases, these brokerage firms are responsible for these unapproved activities under a variety of legal theories including vicarious liability as the agent or employee of the brokerage firm, as a control person of the broker, or based upon the brokerage firm’s failure to supervise the activities of its registered representatives or stockbrokers.
However, when the sale of a private placement is authorized or approved by the broker-dealer, the Financial Industry Regulatory Authority or FINRA has reminded its members that:
In the context of a Regulation D offering, Rule 2310 requires broker-dealers to conduct a suitability analysis when recommending securities to both accredited and non-accredited investors that will take into account the investors’ knowledge and experience. The fact that an investor meets the net worth or income test for being an accredited investor is only one factor to be considered in the course of a complete suitability analysis. The BD must make reasonable efforts to gather and analyze information about the customer’s other holdings, financial situation and needs, tax status, investment objectives and such other information that would enable the firm to make its suitability determination. A BD also must be satisfied that the customer “fully understands the risks involved and is…able…to take those risks.”
Failure to comply with this duty can constitute a violation of the anti-fraud provisions of the federal securities laws and, particularly, Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. It also can constitute a violation of FINRA Rule 2010, requiring adherence to just and equitable principles of trade, and FINRA Rule 2020, prohibiting manipulative and fraudulent devices.
Frum has been registered for almost thirty five years, and other than one complaint involving Hibbard Brown, a notorious, and now defunct boiler-room closed by regulators in the 1990s, when he first became registered, Frum has not been the subject of any disclosed customer complaint, regulatory action or other disclosable event according to FINRA Public Disclosure.
The Guiliano Law Group, P.C.
For more than thirty years, our practice is limited to the representation of investors. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you. There is never any charge for a consultation or a confidential evaluation of your claim. For more information, contact us at (877) SEC-ATTY.
If you believe that you have been the victim of misconduct or fraud, contact us for a free consultation. We handle all cases on a contingency fee basis meaning that there is no cost or obligation, unless we are able to make a recovery for you.
