David A. Scholl of Grand Rapids, Michigan, a stockbroker with PlanMember Services Inc., was fined $5,000 and suspended for three months from associating with any Financial Industry Regulatory Authority (FINRA) member firm in any capacity after consenting to findings that he participated in private securities transactions in violation of his firm’s policies. Letter of Acceptance, Waiver and Consent, No. 2013037123401 (Oct. 29, 2015).
According to the AWC, Scholl had failed to disclose to his firm that he had participated in private securities transaction(s) for compensation pertaining to businesses Mackinac Realty Group and Mackinac Advisory Services, LLC. In May, 2011, Scholl reportedly informed his former LPL client, JJ, that Mackinac was looking for investors to help finance a real estate business venture to purchase residential properties at foreclosure sales, renovate properties, and then sell the properties at a profit.
The AWC indicated that Scholl had assisted JJ with completing the requisite paperwork to open a self-directed IRA at another firm. Subsequently, on June 13, 2011, JJ had sent a $241,000 check from his LPL IRA to the self-directed IRA and invested the funds with Mackinac. JJ, in return, received a Note, dated June 21, 2011, which promised the payment of $257,870 within one hundred and twenty days of the investment of his principal. The Note’s terms indicated that principal and interest was due on October 19, 2011. Scholl reportedly received $7,000 in commissions in connection with the transaction.
According to the AWC, JJ did not receive any payments that were due under the Note on the due date or at any point thereafter. FINRA found that Scholl did not provide any written notice to or receive permission from his firm prior to participating in the aforementioned transaction with JJ and Mackinac. Consequently, FINRA found Scholl to have violated NASD Rule 3040 and FINRA Rule 2010.
Selling away, also known as private securities transactions or undisclosed outside business activities, occurs when a stockbroker engages or participates in the sale of securities to investors outside of the formal approval of the securities firm with whom they are associated.
As a general matter, stockbrokers are only permitted to engage in the solicitation or sale of investments and investment related products approved by their firm. However, quite frequently, stockbrokers solicit, participate, or directly engage in the sale of typically unregistered securities or investments without the approval and outside of the auspices of their firm. These investments may take on many forms, and may include the recommendation of an outside money manager, or a hedge fund, which may sometimes turn out to be a Ponzi scheme. Sometimes these outside investments may include off-shore securities, insurance trusts, stocks or ownership interests in small businesses, startup ventures, corporate debentures, mortgage notes, private placements, promissory notes, oil & gas interests, real estate partnerships, pre-IPO shares, and a variety of other investments.
Public disclosure records via FINRA’s BrokerCheck reveal that Scholl has been subject to four disclosure incidents. On May 12, 2003, Scholl settled a customer dispute for $8,266.00 after customers alleged that they did not know anything about any kind of mutual fund accounts that were opened for them, and that the aggressive nature of the funds in which their money was invested was never explained.
On May 28, 2013, Scholl became subject to a customer dispute (pending) from customer JJ for the aforementioned conduct, where JJ is requesting $241,000.00 in damages. On December 12, 2013, Scholl’s firm filed a Form U5 with FINRA disclosing that Scholl had been terminated (via voluntary resignation) in connection with the aforementioned conduct concerning JJ.
Guiliano Law Group
If you have been the victim of securities fraud and you have a complaint, you should consult with an attorney. The practice of Nicholas J. Guiliano, Esquire, and The Guiliano Law Group, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.