WestPark Capital Inc. and its CEO, Richard Alyn Rappaport (also known as Rick Rappaport), of Los Angeles, California, have been sanctioned by Financial Industry Regulatory Authority (FINRA) based on findings that WestPark and Rappaport misrepresented information to customers concerning WPCFS offerings, and failed to supervise stockbrokers’ solicitations of investments. Letter of Acceptance, Waiver, and Consent No. 2017054381603 (November 22, 2021).
According to the AWC, “between January 2012 and January 2018, WestPark sold 33 promissory notes issued by WestPark’s parent company, WPCFS, to 21 customers, raising a total of $3.9 million (the “WPCFS Offerings”). WestPark made negligent misrepresentations and omissions of material facts to the customers in connection with the sale of the WPCFS Offerings.”
As a result, WestPark violated FINRA Rule 2010, both independently and by acting in contravention of Section 17(a)(2) and (3) of the Securities Act of 1933. Further, in connection with the sale of four of the WPCFS notes, Rappaport made negligent misrepresentations and omissions concerning the WPCFS Offerings. Thus, Rappaport violated FINRA Rule 2010.
The AWC states that offering documents, which Rappaport approved, indicated that WPCFS had a $1,000,000.00 line of credit and that WPCFS had not defaulted on any instrument or agreement concerning its business. The regulator states that the offering documents omitted WPCFS’ default on a line of credit and forbearance agreements. FINRA states that prospective customers were not made aware that WPCFS had operating losses from 2012 to 2016.
Prospective investors were also provided with a misleading analysis regarding what they would have earned on notes. The analysis showed that investors would have received a $9,000,000.00 return on a $2,000,000.00 investment between 2006 and 2010. The calculation was misleading as it was based on a hypothetical rather than actual returns on notes.
The AWC states that prospective investors were also told they would be entitled to distributions of profits and equity from WestPark. This was false as the distributions would come from WPCFS, not WestPark.
FINRA also noted that investors were not made aware of conflicts of interest. The AWC states that WPCFS’ revenues came through distributions from subsidiaries. Investors were not told that Rappaport had sole discretion on subsidiaries’ distributions to WPCFS or that Rappaport could waive WPCFS’ right to equity.
Rappaport and WestPark violated FINRA Rule 2010 for these misrepresentations.
According to the AWC, between January of 2012 and January of 2018, Rappaport and WestPark also failed to ensure that stockbrokers who solicited notes understood the terms. This included ensuring that stockbrokers knew noteholders would not receive distributions of profits and equities from WestPark, but instead WPCFS.
Stockbrokers were not adequately trained by Rappaport, and WestPark and Rappaport did not address concerns that customers raised concerning the notes. FINRA found that Rappaport and WestPark violated FINRA Rules 2010 and 3110(a) as well as NASD Rule 3010(a) because of this.
WestPark was also found to have violated the FINRA Rule 3170, the Taping Rule. On July 19, 2019, WestPark became subject to the requirements of FINRA Rule 3170, after 35 registered representatives who had been associated with oneor more disciplined firms in a registered capacity within the previous three yearsassociated with the firm. According to the AWC, beginning in July 2019, the firm’s system for complying withRule 3170 was deficient in several respects.
WestPark was fined $250,000.00 and censured. Rappaport was fined $30,000.00, suspended for four months from associating with any FINRA member in any capacity, and suspended for 15 months from associating with any member in any principal capacity.
As part of the settlement with FINRA, WestPark and Rappaoirt agreed that they “may not take any action or make or permit to be made anypublic statement, including in regulatory filings or otherwise, denying,directly or indirectly, any finding in this AWC or create the impressionthat the AWC is without factual basis.”
FINRA Public Disclosure also shows that on June 8, 2020, a customer filed an investment related FINRA securities arbitration claim involving Rappaport’s conduct. They requested $1,000,000.00 in damages founded on allegations of Rappaport’s failure to supervise private placement transactions during the time that he was CEO of WestPark Capital. FINRA Arbitration No. 20-01721.
WestPark Capital, Inc., according to FINRA Public Disclosure, is majority-owned by WestPark Capital Financial Services LLC (WPCFS n/k/a WestParkCapital Group LLC), which was owned by Richard Rappaport until at leastJanuary 2018. However, as of November 2021, the date of the AWC, FINRA Public Disclosure shows that WestPark Capital Financial Services LLC is now majority owned by Amanda Rappaport.
