Christian B. Harkness of Lacrosse, Wisconsin, a registered representative with Stifel, Nicolaus & Company, Inc., was fined $15,000 and suspended for nine months fromChristian B. Harkness associating with any Financial Industry Regulatory Authority (FINRA) member in any and all capacities after consenting to findings that he had engaged in unauthorized borrowing from a customer, engaged in outside business activities, and falsely certified compliance questionnaires. Letter of Acceptance, Waiver and Consent, No. 2014043789101 (Nov. 9, 2015).
According to the AWC, in July 2009, while Harkness was employed with UBS, he purchased land from one of his UBS customers. In order to purchase the land, Harkness had executed a promissory note for $242,250 in favor of the customer which included an interest rate and repayment schedule. The AWC further stated that in 2012, Harkness and the same customer had agreed to build a riding arena on the farm land that was previously purchased by Harkness. Harkness reportedly entered into another repayment agreement, where he would be indebted to the customer for an additional $20,000 in connection with the costs associated with the riding arena.
The AWC subsequently stated that in 2013, while Harkness was at Stifel, he and the customer had executed a replacement promissory note for the outstanding amount of the loan previously mentioned. The note was modified to reflect a change in the title-owner of the farm from the firm customer to an LLC former by the customer, where Harkness was made a member of the LLC holding title to the farm. FINRA found that Harkness had not informed or ever obtained prior written approval for the loans and loan modification from UBS or Stifel. FINRA found that Harkness’ conduct in this regard was violative of NASD Rule 2370, FINRA Rule 2370, and 2010.
The AWC further stated that during the relevant period, Harkness was actively involved in the management of the farm with the customer. Specifically, the customer characterized the relationship with Harkness as a partnership and even created a bank account in the name of the partnership for revenues/expenses. FINRA found that Harkness never disclosed these activities to his firm.
The AWC also stated that in May 2014, Harkness had been named the president of a Minnesota LLC that sold promotional products such as buttons, ribbons, key tags, etc. Harkness would reportedly visit the office from time to time and execute documents on behalf of the company. FINRA found that this position was also not disclosed to Stifel. FINRA found that Harkness’ aforementioned conduct was violative of NASD Rules 3030, and FINRA Rules 3270 and 2010 in this regard.
Finally, Harkness was found to have submitted five annual compliance questionnaires from 2010 through 2014, where he falsely answered that he had had never borrowed or loaned money to any of his customers. Harkness reportedly lied about his outside business activities in three of the five compliance questionnaires. FINRA found Harkness’ conduct to be in violative of FINRA Rule 2010 in this regard.
According to FINRA Rule 3270, FINRA’s position is that no registered person like Harkness may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his/her member firm, unless he/she is provided prior written notice to the member. 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.
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 reveal that Harkness has been subject to three disclosure incidents. In November 20, 2010, Harkness settled a customer dispute for $100,000 after customers alleged misrepresentation and unsuitable investment recommendations in connection with a prepaid forward transaction. On December 18, 2014, Stifel Nicolaus discharged Harkness amid allegations of undisclosed business activities and failure to disclose a judgment, and failure to disclose a loan with a client.
The Guiliano Law Group
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