Sandlapper Securities LLC a broker dealer headquartered in Greenville South Carolina and Trevor Gordon (its majority owner and Chief Executive Officer) and Jack Bixler (its Chief Executive Officer) have been sanctioned by Financial Industry Regulatory Authority (FINRA) according to a FINRA Office of Hearing Officers Extended Hearing Panel Decision containing findings that (1) Sandlapper Securities Gordon and Bixler defrauded investors (2) Gordon and Bixler caused Sandlapper Securities to be an unregistered dealer and (3) Sandlapper and Gordon failed to reasonably supervise investment sales. Department of Enforcement v. Sandlapper Securities LLC et al. Disciplinary Proceeding No. 2014041860801 (Nov. 29, 2018).
According to the Decision, the firm, Gordon and Bixler purchased fractional interests in saltwater disposal wells from a disposal well operator, and resold those interests to investors. For background, saltwater disposal wells are apparently designed to dispose of water in an environmentally responsible manner by taking saltwater from well operators and returning it to the ground. Disposal well operators can make money either by stripping the remnants of oil from saltwater and selling the oil for profit, or by charging operators of oils wells a fee for saltwater that the disposal well returns to the ground.
The Decision stated that Gordon and Bixler entered the saltwater disposal wells market by meeting Randy Jones – a developer of saltwater disposal wells in the Texas’ Permian basin. The Decision stated that Jones’ company, Randy B. Jones & Associates (RBJ), constructed and operated disposal wells. RBJ relied upon Sandlapper to bring in investors with capital so that the wells could be constructed and operated by RBJ. Subsequently, Gordon and Bixler and two other Sandlapper representatives created Tiburon Saltwater Reclamation Fund I, LLC. They managed the Fund’s investment decisions, while Sandlapper was the broker-dealer for the Fund’s share distributions. Evidently, from August of 2011 to October of 2014, a total of $12,400,000.00 had been raised for the Fund through the contributions of one hundred seventy investors.
Gordon, Bixler and the two other Sandlapper associates also established TSWR Development at the same time that it established the Fund. Evidently, TSWR Development had been formed so it could acquire disposal well interests and either resell those interests to the Fund, sell those interests to other investors, or maintain the interests. FINRA Department of Enforcement brought the claims against Sandlapper, Gordon and Bixler in reference to the investors’ and the Fund’s purchases of interests from TSWR Development.
Particularly, FINRA Department of Enforcement’s six-count Complaint alleged that the sales of the fractional interests in the saltwater disposal wells was fraudulent. Primarily, the Complaint alleged that the prices charged to investors for the interests were significantly more than the market rate for those interests. FINRA Department of Enforcement stated that the fraudulent sales were evidenced by undisclosed, excessive markups. Ultimately, the Complaint alleged that investors had been collectively overcharged $8,000,000.00 by Sandlapper, Gordon and Bixler.
The Extended Hearing Panel stated that the Fund had been defrauded through Sandlapper, Gordon and Bixler’s imposition of TSWR Development between RBJ and the Fund as well as through charging undisclosed and excessive markups. The Fund’s investment committee had been comprised by Gordon and Bixler, who reportedly effected the purchases of the fraudulently marked up interests to the Fund through TSWR development. Consequently, the Extended Hearing panel found that the firm, Gordon and Bixler violated Securities Exchange Act of 1934 Section 10(b), SEC Rule 10b-5, and FINRA Rules 2010 and 2020.
FINRA Extended Hearing Panel also stated that Gordon and Bixler breached fiduciary duties to the Fund in reference to the purchases of disposal well interests made by the Fund. The Decision stated that Gordon and Bixler committed this violation by causing TSWR Development to take advantage of opportunities to buy well interests at lower prices when the Fund should have been able to take advantage of those lower-priced interests. This reportedly led the Fund to pay prices that were excessively marked up. FINRA’s Extended Hearing Panel found Gordon’s and Bixler’s conduct violative of FINRA Rule 2010 in this respect.
Further, Gordon and Sandlapper evidently defrauded retail customers between 2014 and November of 2015 through Gordon’s use of TSWR Development to sell those interests as securities whilst charging markups that were excessive. The brokers of Sandlapper reportedly sold customers those interests without having informed them about the markups. Sandlapper, Gordon and Bixler were found by FINRA’s Extended Hearing Panel to have willfully deceived investors and made omissions pertaining to the sales of those securities; conduct violative of Securities Exchange Act of 1934 Section 10(b), SEC Rule 10b-5, and FINRA Rules 2010 and 2020.
Further, the Decision stated that retail investors had been defrauded from January of 2013 to November of 2015 by being sold well interests when the interests were advertised as real estate by Sandlapper representatives working under Gordon’s direction. Plus, in those transactions, retail investors had been charged excessive markups without being apprised of what those markups were. The Decision stated that Gordon’s activities in this regard ran afoul of federal securities laws and FINRA Rules.
The Extended Hearing Panel additionally found that Gordon and Bixler never registered TSWR Development as a dealer – either with FINRA or the SEC. Evidently, since TSWR Development consistently bought RBJ’s interests and sold them to investors, registration as a dealer was required. FINRA found Gordon and Bixler’s failure to register TSWR Development as violative of Securities Exchange Act of 1934 Section 15(a) and FINRA Rule 2010.
Furthermore, the Extended Hearing Panel found that the Gordon and Sandlapper neglected to create and maintain a supervision system and written supervisory procedures with a view towards addressing conflicts of interest inherent in Sandlapper’s and TSWR Development’s involvement in the securities transactions. FINRA also found that the firm had a duty to supervise private securities transactions if not for enforcing prohibitions against representatives’ selling away. Consequently, FINRA found that those supervisory failures were violative of FINRA Rules 3110, 2010 and NASD Rule 3010.
FINRA’s Extended Hearing Panel ultimately expelled Sandlapper Securities from FINRA membership and barred Gordon and Bixler from associating with any FINRA member in any capacity.
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