More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
The Financial Industry Regulatory Authority announced Wednesday that it had expelled Washington, D.C.-based Success Trade Securities Inc. from membership and barred its CEO and president, Fuad Ahmed, for defrauding 59 investors, mainly NFL and NBA players.
The FINRA hearing panel has also ordered the firm and Ahmed to jointly and severally pay approximately $13.7 million in restitution to those investors.
Many of the players involved were clients of now-barred financial advisor Jinesh “Hodge” Brahmbhatt and his now-defunct investment advisory firm, Jade Private Wealth Management, which referred clients to Success Trade in exchange for kickbacks.
According to an investigation by Yahoo Sports, those players included San Francisco 49ers tight end Vernon Davis, Cleveland Browns cornerback Joe Haden, former Washington Redskins running back Clinton Portis, former Chicago Bears defensive end Adewale Ogunleye, Miami Dolphins defensive lineman Jared Odrick, Oakland Raiders defensive tackle Pat Sims, Minnesota Vikings defensive tackle Fred Evans and Milwaukee Bucks guard Brandon Knight. The athletes involved were not named in the FINRA complaint.
In April 2013, FINRA issued a complaint and filed a temporary cease-and-desist order against Success Trade Securities, an online broker-dealer, and Ahmed charging fraud in the sales of promissory notes issued by the firm’s parent company, Success Trade Inc. The panel found that from February 2009 through March 2013, Ahmed and Success Trade sold $19.4 million in promissory notes to investors while misrepresenting or omitting material facts, which, the decision notes, would have revealed that the parent company was in dire financial condition.
During the hearing, a FINRA news release states, “Ahmed admitted that the parent company lost money every year in the last 14 years except for 2007.”
FINRA says Success Trade and Ahmed were able to keep the Ponzi scheme going by misrepresenting that proceeds would be used for business expenses, when they were actually used to make unsecured loans to Ahmed for personal expenses and make interest payments to existing noteholders. FINRA also says Ahmed falsely led investors to believe that his businesses were thriving and about to be listed on a European exchange and that that he was about to make a $15 million acquisition of an Australian company in order to persuade investors to convert their notes to equity or to extend the term of the notes.
Unless the hearing panel’s decision is appealed to FINRA’s National Adjudicatory Council (NAC) or is called for review by the NAC, the hearing panel’s decision becomes final after 45 days.
Related on ThinkAdvisor: Advisor to NFL, NBA Players Barred