Cyrus M. Alphonse, of Boston, Massachusetts, a former registered principal with Summer Street Research Partners, has been fined $10,000.00 and suspended from associating with any Financial Industry Regulatory Authority (FINRA) member in any principal capacity based upon consenting to findings that, inter alia, he failed to supervise a subordinate registered representative’s private securities transactions. Letter of Acceptance, Waiver and Consent, No. 2014038889901 (Jan. 5, 2017).
According to the AWC, while Alphonse was registered with Summer Street Research Partners, he was responsible for supervising the activities of AS, who was a registered representative of the firm. Apparently, in June of 2010, an outside business activity was disclosed by AS regarding his involvement in a private equity fund, where the fund was in the business of providing microcap issuers with convertible notes. In these cases, the private equity fund reportedly obtained shares which were restricted when the notes had been converted.
The AWC stated that from October of 2012 to April of 2014, the private equity fund assisted eighteen microcap issuers in the execution of convertible notes, where the restricted shares were placed into brokerage accounts held outside the auspices of Summer Street. Apparently, when these shares came out of a restricted state, they were sold through the outside brokerage account as well. Specifically, from April of 2013 to February of 2014, at least two billion of the shares were sold, in which the private equity fund obtained proceeds totaling $1,000,000.00.
FINRA stated in the AWC that AS’s involvement within the private equity fund was made known to Alphonse. Particularly, Alphonse was reportedly aware that shares were sold via the private equity fund. Alphonse was purportedly responsible for reviewing private securities transactions and providing approval for them; however, AS’s conduct was incorrectly deemed an outside business activity by Alphonse rather than a private securities transaction. FINRA determined that the transactions effected by the private equity fund were never recorded on Summer Street Research Partners’ records and books. Consequently, FINRA found that Alphonse’s conduct was violative of FINRA Rule 2010, as well as NASD Rules 3010 and 3040.
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