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Gary Lee Rathbun and Douglas Scott Miller, both of Toledo Ohio, and stockbrokers for Triad Advisors, Inc., were permanently barred from associating with any Financial Industry Regulatory Authority (FINRA) member firm in any capacity after engaging in unauthorized outside business activities. Letter of Acceptance, Waiver and Consent, No. 2014041919401 (May 17, 2016).
According to the AWC, in 2009, Miler became a partner of company PWC, which Rathbun founded in 1983. Apparently, at the time Miller partnered with Rathbun, the individuals were managing an estimated $90,000,000.00 in customer assets. By 2015, the individuals were managing $190,000,000.00 in customer assets. The AWC stated that Miller and Rathbun seldom processed securities transactions through Triad, and customers would actually go through other broker-dealers for such.
Apparently, in 2010, clients were positioned by Miller and Rathbun the opportunity to invest in several LLCs in Toledo, Ohio. The LLCs (six in total) were reportedly in the business of venture lending, factoring, and equipment lending. The AWC reported that in the majority of circumstances, Miller and Rathbun would discuss the investments with the customers and facilitate the transactions on the customers’ behalf.
According to the AWC, 300 accounts were opened up by 187 clients of Miller and Rathbun. Apparently, the customers invested an estimated $25,500,000.00 in the six LLCs. FINRA noted that Miller and Rathbun profited from the transactions by way of the customers’ being charged advisory fees (for assets under their management). Additionally, Miller and Rathbun were reportedly paid $500 per hour in return for monitoring financial statements of the LLCs.
The AWC stated that Miller and Rathbun, in connection with the LLC operations, were able to reject factoring, lending, and other arrangements on behalf of the LLCs if they felt that there was too much risk associated with the arrangements. Apparently, between 2010 and 2014, Miller and Rathbun were paid in excess of $600,000.00 in monitoring fees.
FINRA alleged that Miller and Rathbun did not comply with the requirement of providing Triad with prior notice, which specified information regarding their participation in the securities transactions. Triad reportedly never approved of their transactions. Apparently, the individuals did provide Triad with notice regarding the investments, but failed to notify the firm regarding their participation. FINRA also found that Miller and Rathbun made investments in such LLCs, both personally and on behalf of family members, without disclosing such information to Triad. FINRA found that Miller’s and Rathbun’s conduct was violative of NASD Rule 3040 in this regard.
FINRA also found that Miller’s and Rathbun’s compensation received in connection with the LLCs was beyond the scope of their notice to Triad. Particularly, Miller and Rathbun indicated to Triad that the individuals would be engaging in advisory services to clients, but had not disclosed the additional business arrangements concerning the LLCs. FINRA found that Miller and Rathbun both violated NASD Rule 3030 and FINRA Rule 3270, as well as FINRA Rule 2010.
Public disclosure records reveal that on July 11, 2014, Rathburn and Miller were both permitted to resign from Triad Advisors, Inc. amid allegations of the violations of the firm policies pertaining to private securities transactions. Both individuals are barred from acting as broker or otherwise associating with firms selling securities to the public.
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