Success Trade Securities, Inc., a broker-dealer headquartered in District of Columbia, as well as its president and chief compliance officer, Fuad Ahmed, were subject of a Securities and Exchange Commission (SEC) Opinion holding that the firm and Ahmed committed fraud and effected unregistered securities offers and sales. In the Matter of the Application of Fuad Ahmed and Success Trade Securities, Admin. Proc. File No. 3-16900 (Sept. 28, 2017).
The SEC Opinion affirms a Financial Industry Regulatory Authority (FINRA) decision to expel the firm and bar Ahmed from associating with any FINRA member in any capacity based upon consenting to findings that the firm and Ahmed made material omissions and misstatements to investors in the offer and sale of promissory notes, and sold securities that were neither registered nor exempt from registration. FINRA found that the firm’s and Ahmed’s conduct was violative of FINRA Rules 2010, 2020, Securities Exchange Act of 1934 Section 10(b), SEC Rule 10b-5, and Securities Act of 1933 Section 5.
According to the Opinion, from March of 2009 to February of 2013, a total of sixty-five investors were sold one-hundred and fifty-two notes issued by Success Trade Securities, Inc., in order to improve the company’s financial situation. Following this point, the firm and Ahmed became subject of an investigation by securities regulators in District of Columbia and Virginia, as well as SEC and FINRA.
Particularly, in June of 2012, the firm was investigated by District of Columbia Department of Insurance Securities and Banking regulators, where it was discovered that the firm effected securities sales despite them having been unregistered nor able to be sold according to an exemption. At that time, the firm was instructed to cease and desists the securities sales. Further, the District of Columbia securities regulators found that the firm made misrepresentations to customers in the private placement memorandums regarding the promissory notes.
The Opinion stated that firm failed to take action to correct its wrongdoing: it failed to register the transactions or make the required changes to the private placement memorandums, and continued to sell securities despite instructions to cease and desist. Consequently, the firm was banned from conducting securities business in the state, and was subject of a $650,000.00 civil penalty and $12,529,804.34 in restitution. FINRA’s Hearing Panel concluded that the firm and Ahmed engaged in securities fraud, and consequently expelled the firm, permanently barred Ahmed, and ordered restitution totaling $13,700,000.00. FINRA’s National Adjudicatory Council affirmed the Hearing Panel Decision, resulting in the firm’s and Ahmed’s appeal to the SEC.
The SEC affirmed the National Adjudicatory Council’s opinion, holding that the firm and Ahmed knew about the omissions and misstatements made to customers regarding the promissory notes. Particularly, the Opinion noted that Ahmed made all decisions on behalf of the firm, including approving of the private placement memorandums and supplements used in the offer of the notes.
The SEC found that nearly all features of the offering had been misrepresented to Ahmed, where he misrepresented: terms and rates of the notes; amount of funds that the offering accumulated; information concerning investors; and the manner that the funds would be used. The SEC found that the omissions prevented customers from understanding the amount of money due, the rate that their funds would be repaid, and the risks of default.
Ahmed reportedly concealed the firm’s poor financial condition in the offering documents as well as when he personally communicated with the investors. In the private placement memorandums utilized to accumulate sixteen percent of the overall notes sales, Ahmed purportedly omitted the amount of debt which the company faced. The SEC also noted how investors were kept in the dark about a substantial amount of their funds having been utilized to pay off existing investors instead of making improvements to the company. The SEC further concluded that omissions and misrepresentations were made by Ahmed to persuade the investors to convert notes into stock issued by the firm or otherwise accept an extension on the maturity of the notes so Ahmed could avoid fulfilling the firm’s obligations to repay customers.
FINRA Public Disclosure confirms that Ahmed has been identified in seven customer initiated investment related disputes containing allegations of Ahmed’s misconduct. In particular, a customer initiated investment related arbitration claim involving Ahmed’s conduct was settled for $265,000.00 in damages supported by accusations of fraud, violation of Florida Securities Investor Protection Act, negligence and breach of fiduciary duty in regard to the customer’s private placement investments. FINRA Arbitration No. 13-01149 (Nov. 5, 2014).
Thereafter, a customer initiated investment related arbitration claim regarding Ahmed’s activities was resolved for $193,988.00 in damages based upon allegations of breach of contract and fiduciary duty, omissions and misrepresentations, negligence, and violations of the Securities Act of the State of Colorado. FINRA Arbitration No. 13-01311 (Sept. 11, 2014).
Another customer initiated investment related arbitration claim involving Ahmed’s conduct was settled for $36,249.90 in damages founded on accusations of securities fraud concerning private placements. Arbitration No. 13-01922 (May 13, 2014). Subsequently, a customer initiated investment related arbitration claim regarding Ahmed’s activities was resolved for $291,027.18 in damages founded on allegations of fraud in violation of the Securities Act of the State of Maryland. Further, a customer arbitration was settled for $52,000.00 in damages supported by accusations including the fraudulent misrepresentation of private placement investments, and violation of the Kentucky Securities Act. Arbitration No. 13-02040 (Sep. 11, 2014).
Furthermore, a customer was awarded $199,375.85 in damages according to an investment related arbitration claim containing findings that Ahmed violated the California Corporations Code. The customer also alleged that the firm failed to supervise Ahmed’s activities relating to the customer’s promissory notes transactions. FINRA Arbitration No. 13-01867 (Sept. 25, 2016). Additionally, a customer was awarded $400,000.00 in compensatory damages according to an investment related arbitration claim involving Ahmed’s misconduct, based upon findings of breach of contract, failure to conduct due diligence, suitability, and fraud relating to promissory notes.
Since June 30, 1994, Ahmed has been associated with six different broker dealers, three of which have been expelled by securities regulators for violation of federal securities laws or are otherwise defunct.
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