Thomas Diamante of Babylon Village, New York, a stockbroker registered with SW Financial, has been fined $50,000.00 and suspended for nine months from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity because Diamante deceived investors in connection with the sale of private placement offerings of pre-IPO funds. Letter of Acceptance, Waiver, and Consent No. 2020065599102 (May 12, 2023).
According to the AWC, in the beginning of 2018, Diamante and an issuer of private placement offerings of pre-IPO funds agreed that SW Financial would assist in selling the issuer’s investments. These investments were supposed to give individuals a chance to buy into privately owned businesses that were getting ready to go public. Shares in those private businesses were the only thing these investments were said to offer. Even though their written agreement said SW Financial would get a ten percent sales commission, the issuer and Diamante agreed that SW Financial would actually get an extra five percent commission, for a total of 15 percent, plus half of any future profit.
Diamante did not tell his coworkers at SW Financial, including the sales team and the chief compliance officer, that the securities broker dealer would be making extra money. Diamante approved the investment documents and shared them with potential investors. These documents incorrectly said that SW Financial would only get a ten percent sales commission. When individuals invested, they got a welcome letter from the issuer, which repeated the wrong information about SW Financial only getting a ten percent sales commission. The sales team could not fix these mistakes because Diamante never told them that SW Financial was going to get extra money. The company’s chief compliance officer also filed papers with FINRA four times saying SW Financial would only get a ten percent sales commission.
The AWC stated that from March of 2018 to December of 2021, SW Financial sold the investments to 171 investors. The investments added up to about $21,300,000.00 in principal value. SW Financial made about $3,060,000.00 in total, with $936,000.00 of that coming from the extra five percent commission that was not disclosed.
Diamante used some of the money from the disclosed ten percent commission to pay the sales team, but he put the undisclosed commission into the securities broker dealer’s general fund, which he used to pay himself. The issuer also transferred shares worth more than $1,070,000.00 to SW Financial and Diamante, among other owners, to cover their share of future profit. Because of what Diamante did, SW Financial made about $2,000,000.00 extra, a portion of which Diamante kept for himself.
FINRA stated that Diamante got money by leaving out important details, and acted in a way that was misleading or dishonest to investors. Therefore, FINRA found that Diamante violated FINRA Rule 2010 as well as Securities Act of 1933 Sections 17(a)(2) and (3).
The AWC also stated that from the start of 2018 to the end of 2021, SW Financial appointed Diamante to oversee its private placement dealings. SW Financial asked Diamante to confirm that they were doing their due diligence on every private placement they sold. Diamante had the duty to conduct required checks, including an evaluation of the issuer’s asset quality. The securities broker dealer also demanded that Diamante verify the correctness of all investor information and ensure all necessary information was included in the offering documents. To handle these supervisory duties, Diamante had to fill out, endorse, and timestamp a due diligence checklist for each investment, providing proof of the securities broker dealer’s inspection.
However, Diamante did not carry out his duties, as he failed to perform adequate due diligence on the investments. He did not complete due diligence checklists for the 21 investments. Consequently, even though his role was to inspect the quality of assets held by the issuer, he neglected to verify whether the issuer actually owned the pre-IPO shares that were the sole asset of the offering. For many investments, the concerned companies had not gone public yet, leaving it uncertain whether the issuer actually owned the pre-IPO shares they claimed to sell. Furthermore, despite knowing that the issuer was increasing the prices of the pre-IPO shares sold, Diamante did not check the extent of these increases. The price hikes for at least some of the investments ranged between 25 and 39 percent. This was not revealed to potential customers in the offering documents.
FINRA stated that the documents Diamante was tasked with checking misrepresented the compensation SW Financial agreed to receive for the investments.
Therefore, FINRA found that Diamante violated FINRA Rules 2010 and 3110.
Diamante’s stockbroker registration with SW Financial was terminated on April 17, 2023. He has been registered with ten different securities broker dealers eight of which, have been expelled by regulators for violation of federal securities laws or are otherwise defunct, including SW Financial, which FINRA expelled on May 12, 2023.
