Randall Gladden of El Cajon, California, a stockbroker with Securities Equity Group, was just charged by Financial Industry Regulatory Authority (FINRA) Department of Enforcement in a Complaint alleging that Gladden had engaged in unauthorized private securities transactions; undisclosed outside business activities; and made material misrepresentations and omissions. Department of Enforcement v. J. Randall Gladden, No. 2014038996201 (Dec. 28, 2015).
According to the Complaint, while Gladden was associated with Securities Equity Group, he had conceived of and participated in creating Church Development Fund, LLC and its successor, Church Fund LLC, for the purpose of making loans to churches, primarily for refinancing the customers’ existing real estate loans. The Complaint indicated that Gladden had participated in the management of the Church Development Fund and Church Fund and additionally served as a governing member of the Funds’ managers, which were CDF Managing Partners, LLC and CF Manager.
The Complaint further stated that from May 2011 – September 2013, Gladden solicited seven investors to collectively invest in excess of $2,100,000 in the Funds via the purchase of securities. Despite this, on Gladden’s 2011 and 2012 Compliance Certifications, Gladden allegedly falsely informed his firm that he had had not engaged in any capital raising activities for any company, corporation, or business entity. FINRA alleged that Gladden had failed to inform his Firm that he was serving as the principal member of the Funds’ managers.
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.
FINRA alleged that Gladden had participated in private securities transactions without providing written or other notice to his Firm and without receiving written approval in violation of NASD Conduct Rule 3040 and FINRA Rule 2010; failed to provide his Firm with prompt written notice of his participation in the Funds’ management outside the scope of his relationship with the Firm; falsely stated that he had not engaged in capital raising activities; and failed to disclose that he was a principal member of the Funds’ Managers.
Public disclosure records via FINRA’s BrokerCheck reveal that Gladden has been subject to five disclosure incidents. On May 23, 1995, Gladden was subject to a customer dispute, where the customer was awarded $1,000 after alleging breach of fiduciary duty, churning, misrepresentation, non-disclosure and unauthorized trading. On December 19, 1996, Gladden settled a customer dispute for $10,000 after being alleged to have engaged in unauthorized discretion of the customer’s account.
On December 19, 1996, the U.S. Commodity Futures Trading Commission found that Gladden had failed to comply with a final order of the CFTC that reparations be paid, resulting in his suspension and prohibition from trading on any contract market and registration being suspended in accordance with Section 14 of the Commodity Exchange Act. Gladden was subsequently subject to another Commodity Future Trading Commission suspension for failure to pay reparations.
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