Noble Financial Capital Markets, headquartered in Boca Raton, Florida, as well as the firm’s president, Nicolaas Petrus Pronk, have been charged by Financial Industry Regulatory Authority (FINRA) Department of Enforcement in a Complaint alleging that the firm and Pronk defrauded the firm’s customers. Department of Enforcement v. Noble Financial Capital Markets et al., No. 2013035740901 (Nov. 23, 2016).
According to the Complaint, seven of the firm’s customers pursued recommendations made by the firm and Pronk regarding shares of AdCare Health Systems, Inc., in which seven million of the entity’s shares were purchased by such customers. The Complaint stated that customers were deprived of information regarding the firm’s several conflicts of interest in the course of making their investments.
Apparently, AdCare Health Systems had been recommended and promoted through Noble and Pronk to the firm’s prospective customer base in order to generate profits associated with banking relationships that Noble and AdCare maintained. Yet, such banking relationships had not been disclosed to investors. Additionally, investors were deprived of information regarding Noble’s acts of arbitrage regarding the securities of AdCare. FINRA alleged that the firm and Pronk’s recommendations to customers were fueled by these hidden financial interests.
The Complaint also indicated that Pronk was responsible for controlling promotions and sales pertaining to AdCare, and was additionally responsible for investment banking, sales, and proprietary trading. Apparently, AdCare shares were aggressively solicited by Noble and Pronk via utilizing the firm’s sales and trading division’s registered representatives to communicate with investors, which primarily consisted of institutional customers.
Additionally, the firm and Pronk were alleged by FINRA to have utilized Noble’s research division in order to issue research reports, and promoted AdCare through Noble’s institutional sales and investment banking divisions by conducting road shows. FINRA alleged that the sales scripts which the firm provided brokers was misleading, and such script was utilized for purposes of making the AdCare solicitations to the potential investors.
The Complaint revealed that Noble and Pronk either knew or were reckless in not knowing that the aforementioned omissions had been made regarding AdCare to investors. Specifically, the Complaint detailed four conflicts of interest which FINRA claimed were material: 1) FINRA claimed that Noble and Pronk effected a strategy consisting of risky arbitrage based trading in AdCare as well as with warrants of AdCare that had been publicly traded; 2) brokers were reportedly promised substantial compensation incentives, which exceeded the normal commissions paid to such brokers, in return for broker’s promoting and generating AdCare sales from prospective investors; 3) Noble was due to receive a cash fee equating to seven percent of the AdCare warrants which were privately held and publicly traded, per a warrant agreement; and 4) Noble received six thousand dollars per month by AdCare in return for providing advisory services to AdCare.
Regarding the arbitrage trading strategy, the firm’s proprietary trading account was reportedly utilized in order to make purchases and hold AdCare warrants, as well as to effect short sales of AdCare to the firm’s customers. Subsequently, warrants that were held for a longer term by the firm were exercised, where the shares which were obtained were utilized to cover the firm’s short position within AdCare.
The Complaint stated that Noble and Pronk utilized the arbitrage trading strategy in order to generate profits based on the spread associated with purchasing the AdCare warrants and exercising them, and the short-sale proceeds in AdCare, in addition to obtaining the cash fee pertaining to the warrant agreement. FINRA alleged that the firm and Pronk’s conduct, which consisted of willful securities fraud, was violative of Securities Exchange Act of 1934 Section 10(b), Rule 10b-5, as well as FINRA Rules 2010 and 2020.
The Complaint additionally alleged that in 2011, Noble issued sixteen research reports which omitted the relationship that Noble had with AdCare, in addition to the compensation which Noble would be provided in connection with the investment banking services that Noble provided AdCare. As such, FINRA found that Noble’s conduct was violative of NASD Rules 2711(h) and FINRA Rule 2010.
FINRA Public Disclosure reveals that Pronk has been subject to ten customer initiated investment related arbitration claims between May 30, 1995, and February 7, 2003, which settled for over $415,000.00 in damages based upon allegations that Pronk effected unsuitable transactions in the customers’ accounts.
Guiliano Law Group
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