Clifford Morgan from Chicago, Illinois, a stockbroker with Uhlmann Price Securities, LLC, was barred from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity after consenting to findings that he had engaged in private securities transactions without approval from his firm; made material misrepresentations to firm customers; and failed to fully and timely comply with FINRA’s requests for information in connection with their investigation into Morgan’s conduct. Letter of Acceptance, Waiver and Consent, No. 2014043670301 (Oct. 29, 2015). Public disclosure records reveal that Uhlmann Price Securities permitted Morgan to resign amid allegations of Morgan’s private securities transactions and resulting conflict with firm policies.
According to the AWC, from September 2013 through August 2014, Morgan had referred approximately twenty people (including six of the firm’s customers) to an investment in promissory notes in Company A, a private trading and financial services company. The AWC stated that Morgan participated in meetings and telephone calls regarding the promissory notes, where he provided marketing materials to investors and answered their questions concerning the offerings. Morgan’s referrals reportedly purchased roughly $1,800,000.00 in Company A’s promissory notes, while Morgan himself purchased $200,000 in the notes. The AWC reported that Morgan never notified his firm of such transactions.
Further, in March 2012, Morgan had engaged in other private securities transactions, where he had solicited a firm customer to invest $25,000 in return for a stake in Company B, an entity which Morgan was actually a member. In May, 2013, Morgan referred another customer to invest in Company C, resulting in the customer investing $30,000 in a convertible promissory note. The AWC indicated that the aforementioned transactions took place outside of the firm, and Morgan never notified his firm. FINRA found that Morgan’s conduct of engaging in private securities transactions without obtaining firm approval was violative of NASD Rule 3040.
Additionally, FINRA found that in connection with Morgan’s referrals to Company A, Morgan had made material misrepresentations and omissions by forwarding the potential investors documents by Company A that contained multiple misrepresentations. Such misrepresentations included falsely stating that the company completed four deals, overstating the company’s revenue, and inaccurately projecting high returns with low risk. FINRA found that Morgan’s conduct was violative of FINRA Rule 2010 in this regard.
In addition to participating in the private securities transactions, FINRA also found that Morgan had engaged in outside business activities without providing notice to his firm. Specifically, Morgan was appointed as an advisor to Company D in return for compensation in connection with business deals with Company A. Morgan was also reportedly involved in the formation of Company E, where he opened a bank account for Company E that he and others could access. Further according to the AWC, he conducted business for Company F that provided his company $60,000. Morgan was also found to have formed Company G with business partners, formed Company H where Morgan was a registered agent, formed Company I for purposes of oil and gas investments, formed Company J where Morgan served as the entity’s Treasurer, and acted as a founding member of Company B – where Morgan signed loan agreements for the company selling equity interests. In all aforementioned activities, Morgan never notified his firm. FINRA found that Morgan’s conduct in this regard was violative of FINRA Rule 3270 and 2010.
In December 2014 and July 2015, FINRA had requested on five occasions that Morgan provide information and documentation in connection with FINRA’s investigation into Morgan’s conduct, pursuant to Rule 8210. Morgan failed to respond timely or completely to the requests. After FINRA’s staff issued Morgan seven deficiency letters concerning Morgan’s lack of providing complete response, FINRA eventually found Morgan to have violated FINRA Rules 8210 and 2010, leading to his permanent bar.
According to FINRA Rule 3270, no registered person like Morgan 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.
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.
Firms and individuals, not surprisingly, are prohibited from unauthorized use of customer funds, borrowing of a customer’s securities or funds, forgery, non-disclosures or misstatements of material facts, and various deceptions and manipulations. Such conduct can also be found to violate criminal and other civil laws, and be subject to sanction from the federal and state government bodies.
Guiliano Law Group
If you have been the victim of securities fraud and you have a complaint, you should consult with an attorney. The practice of Nicholas J. Guiliano, Esquire, and The Guiliano Law Group, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.
