Prominent financial adviser fined $1M

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carolinaman
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Prominent financial adviser fined $1M

Post by carolinaman » Sat Oct 12, 2019 11:23 am

A prominent and well known Charlotte financial adviser was just fined $1M for selling unregistered and fraudulent securities to clients. This guy was on the radio for a long time and presented himself as a conservative and safe investor. He came across as very credible on the radio. I was shocked when I first heard this. It is just another example of how people can be taken by unscrupulous advisers and they can be hard to figure out until it is maybe too late:

https://www.charlotteobserver.com/news/ ... 69582.html
"Former Charlotte financial adviser Jim Heafner and Taylor Capital Management have been ordered to pay $1.03 million by a regulatory agency after five Charlotte-area retirees say they invested with Heafner and lost more than $500,000.

The retirees had filed for arbitration with the Financial Industry Regulatory Authority, which oversees market investments, after investing in the now-bankrupt 1 Global Capital of Florida. They invested through Heafner, who sold securities as a registered agent of Taylor Capital of Georgia.

Heafner was well-known in the Charlotte area for giving financial advice on local TV stations — including WBTV, WCNC and WSOC — on the radio and in self-help books. Clients had accused him of selling unregistered financial instruments issued by 1 Global, the Observer reported in March, citing FINRA disclosures."

retiredjg
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Re: Prominent financial adviser fined $1M

Post by retiredjg » Sat Oct 12, 2019 11:58 am

Such a shame.

Can someone explain what an "unregistered financial instrument" is and how it could be sold? Is it possible for a broker not to know that something he is selling is an "unregistered financial instrument"? Could something be registered in one state and not in another?

I'd like to understand how something like this can happen.

Vanguard Fan 1367
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Re: Prominent financial adviser fined $1M

Post by Vanguard Fan 1367 » Sat Oct 12, 2019 1:25 pm

Here we like the advice of John Bogle. I would guess that Vanguard’s Total Stock Market fund is properly registered.

afan
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Re: Prominent financial adviser fined $1M

Post by afan » Sat Oct 12, 2019 1:27 pm

The risk of investing based on a cult of personality. Whether the person gives advice on the radio should have no effect on the decision to invest with him. There are lots of opportunities to invest with large heavily regulated mutual funds with no assumptions needed about the honesty of a particular salesperson.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

J295
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Re: Prominent financial adviser fined $1M

Post by J295 » Sat Oct 12, 2019 1:41 pm

What makes you conclude he was “unscrupulous.“

Negligent —- appears quite likely. In violation of industry rules —so ordered. Unscrupulous?

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David Jay
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Re: Prominent financial adviser fined $1M

Post by David Jay » Sat Oct 12, 2019 1:55 pm

J295 wrote:
Sat Oct 12, 2019 1:41 pm
What makes you conclude he was “unscrupulous.“

Negligent —- appears quite likely. In violation of industry rules —so ordered. Unscrupulous?
A person with scruples would perform due diligence on any “alternative investments” before recommending them to their clients.

More likely, such a person would steer clear of such products.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

retiredjg
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Re: Prominent financial adviser fined $1M

Post by retiredjg » Sat Oct 12, 2019 2:10 pm

I didn't read the entire thing, but apparently the salespeople were paid a large commission - 3% of the money they brought in and another .75% if the money rolled over for another investment.

https://www.sec.gov/litigation/complain ... 18-171.pdf

It's long....

alex_686
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Re: Prominent financial adviser fined $1M

Post by alex_686 » Sat Oct 12, 2019 2:13 pm

retiredjg wrote:
Sat Oct 12, 2019 11:58 am
Can someone explain what an "unregistered financial instrument" is and how it could be sold? Is it possible for a broker not to know that something he is selling is an "unregistered financial instrument"? Could something be registered in one state and not in another?
Well, you create a financial instrument, don't register it, and sell it. :happy On a more serious note, this happens all of the time. Think hedge funds and private equity. They are only supposed to be sold to accredited investors.

As for the state angle - this was true when I first entered the business a long long time ago. I would suppose it would still be true today. Think of small businesses that require lots of capital. State banks, small manufactures, and local real estate developers. Do you really need to go for the full registration process for the small fry?

retiredjg
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Re: Prominent financial adviser fined $1M

Post by retiredjg » Sat Oct 12, 2019 2:28 pm

alex_686 wrote:
Sat Oct 12, 2019 2:13 pm
retiredjg wrote:
Sat Oct 12, 2019 11:58 am
Can someone explain what an "unregistered financial instrument" is and how it could be sold? Is it possible for a broker not to know that something he is selling is an "unregistered financial instrument"? Could something be registered in one state and not in another?
Well, you create a financial instrument, don't register it, and sell it. :happy On a more serious note, this happens all of the time. Think hedge funds and private equity. They are only supposed to be sold to accredited investors.
Ok. So every financial instrument that is sold does not have to be registered (with the SEC I assume), but you can't just sell it to anybody. Is that what you mean?

The lawsuit discusses that issue in several places - that these people were just ordinary investors, many of them taking money out of their 401ks or IRAs and that the investment was being touted as a low risk high return venture.

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Re: Prominent financial adviser fined $1M

Post by HomeStretch » Sat Oct 12, 2019 2:31 pm

retiredjg wrote:
Sat Oct 12, 2019 11:58 am
Can someone explain what an "unregistered financial instrument" is and how it could be sold? Is it possible for a broker not to know that something he is selling is an "unregistered financial instrument"? Could something be registered in one state and not in another?

I'd like to understand how something like this can happen.
So this is a 50,000 foot explanation of a technical area that I’ll try to keep brief but there are lots of exceptions (which is why SEC filings for example are so lengthy even when written in “plain English”)...

Unregistered U.S. securities usually means the securities are not registered with the U.S. Securities and Exchange Commission. Private companies (like small companies, venture capitalists and private equity firms) use unregistered securities. When a company goes public, it files a registration statement (that usually complies with state “blue sky laws”) to register the securities with the SEC. Public companies then generally having ongoing compliance requirements to keep the securities registered (filings with the SEC like registration statement amendments, 1934 Act filings like Form 10-Qs and 10-Ks, etc.).

An investor needs to do their due diligence on any potential investment and deal with reputable brokers, placement agents, etc. An investor can use the SEC’s EDGAR system (available online) to review all such SEC filings to make an informed investing decision when considering investing in a registered security. Investor information about unregistered securities would be subject to the discretion of the private issuers and, if applicable, their placement agents.

A broker/advisor that is recommending securities to clients should absolutely be doing their due diligence (DD). If a company is offering fraudulent securities (like the SEC alleged 1 Global was), then it’s possible a broker may be duped if they didn’t do their DD or worse if the investor purchased from for example a barred broker (again like the SEC alleged).

The investors were likely defrauded or sold unsuitable investments. But if one did a forensic review of the documentation they received and the promises (of investment returns for example) that were made by the broker, experienced investors likely would not have invested.

retiredjg
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Re: Prominent financial adviser fined $1M

Post by retiredjg » Sat Oct 12, 2019 2:52 pm

Thanks HomeStretch. That was very helpful. I'm getting a clearer picture now.

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carolinaman
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Re: Prominent financial adviser fined $1M

Post by carolinaman » Sat Oct 12, 2019 2:53 pm

J295 wrote:
Sat Oct 12, 2019 1:41 pm
What makes you conclude he was “unscrupulous.“

Negligent —- appears quite likely. In violation of industry rules —so ordered. Unscrupulous?
You may be right that it was more negligence. However, he touted his investing approach was conservative and geared more to safer investments which attracted a lot of retirees and near retirees. Even if he was fooled by the investment, it was never a suitable investment for his clientele and he should have know that. In my view, he was knowingly deceptive about the investment.

UpperNwGuy
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Re: Prominent financial adviser fined $1M

Post by UpperNwGuy » Sat Oct 12, 2019 3:38 pm

He was unscrupulous.

alex_686
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Re: Prominent financial adviser fined $1M

Post by alex_686 » Sat Oct 12, 2019 3:56 pm

retiredjg wrote:
Sat Oct 12, 2019 2:28 pm
Ok. So every financial instrument that is sold does not have to be registered (with the SEC I assume), but you can't just sell it to anybody. Is that what you mean?
Yes. In fact, most financial instruments are not registered. Like I alluded to before, most of this stuff is of smaller size. Brokers are supposed to screen for suitability before pitching.

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Re: Prominent financial adviser fined $1M

Post by White Coat Investor » Sat Oct 12, 2019 4:17 pm

afan wrote:
Sat Oct 12, 2019 1:27 pm
The risk of investing based on a cult of personality. Whether the person gives advice on the radio should have no effect on the decision to invest with him. There are lots of opportunities to invest with large heavily regulated mutual funds with no assumptions needed about the honesty of a particular salesperson.
It's also very interesting to look into what it takes to get on the radio.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Re: Prominent financial adviser fined $1M

Post by arcticpineapplecorp. » Sat Oct 12, 2019 4:58 pm

the full report (form ADV part 2) can be found here:

https://www.adviserinfo.sec.gov/IAPD/Su ... pk=4837072

just a friendly reminder to review someone's ADV part 2 before handing over your money. It's no guarantee because there may not have been any infractions (I don't believe there were any on his ADV part 2 prior to this situation), but it's still wise to do your due dilligence. Verify, then trust as they say.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

retiredjg
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Re: Prominent financial adviser fined $1M

Post by retiredjg » Sat Oct 12, 2019 5:02 pm

alex_686 wrote:
Sat Oct 12, 2019 3:56 pm
Brokers are supposed to screen for suitability before pitching.
I suspect this is what he was "guilty" of and why he is facing the civil fines. Of course, that is only a guess.

I have not figured out why the company he was registered with was also found liable. They say they didn't know.

renue74
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Re: Prominent financial adviser fined $1M

Post by renue74 » Sat Oct 12, 2019 7:58 pm

I'm in the Charlotte market and have heard this guy before. There's always a market for greed. A way for us to "beat the market," or to find alternative investments.

We can say "one must do their due diligence," but many folks are not savvy enough and rely on their financial advisor to steer them in the right direction.

It's unfortunate.

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Re: Prominent financial adviser fined $1M

Post by alex_686 » Sat Oct 12, 2019 8:03 pm

retiredjg wrote:
Sat Oct 12, 2019 5:02 pm
I have not figured out why the company he was registered with was also found liable. They say they didn't know.
I have worked in compliance. It was most definitely the company’s responsibility to monitor their clients, their brokers, and the products they sell. They must proactively do this research. They can’t just close their eyes and say they don’t know.

Lots of historical reasons why the regs are written this way.

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Re: Prominent financial adviser fined $1M

Post by skepticalobserver » Sun Oct 13, 2019 9:18 am

retiredjg wrote:
Sat Oct 12, 2019 11:58 am
Can someone explain what an "unregistered financial instrument" is and how it could be sold?
A security is an investment contract between two or more parties, where there’s an expectation of profit and the management of the enterprise is centralized; that is, controlled by one party and, accordingly, remaining parties are deemed passive investors.

Under federal and state securities laws a security must be registered with (vetted by) federal and state securities administrators, unless certain exemptions from registration are met.

Compliance with securities regulation should include disclosure of investment risk which may reflect the likelihood that the enterprise will never be profitable and self-dealing. Fairness to investors is irrelevant. Thus, if you disclose the fleecing it’s all good.

It’s a wonder that they’re called equities.

Anyone may sell an unregistered security as long as they set aside time for a visit to the pokey.

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Cheez-It Guy
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Re: Prominent financial adviser fined $1M

Post by Cheez-It Guy » Sun Oct 13, 2019 9:57 am

Hope this means I don't have to see this guy and his stupid commercials on TV anymore.

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Re: Prominent financial adviser fined $1M

Post by Stinky » Sun Oct 13, 2019 10:06 am

UpperNwGuy wrote:
Sat Oct 12, 2019 3:38 pm
He was unscrupulous.
+1

The “investment” radio shows I’ve heard are mostly long commercials, trolling for new clients. It’s too bad a guy like this achieved a place of prominence and trust.
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Re: Prominent financial adviser fined $1M

Post by LadyGeek » Sun Oct 13, 2019 11:48 am

This thread is actionable to understand (1) the FINRA disciplinary process and (2) "unregistered financial instrument".

The FINRA disciplinary action is here: FINRA Disciplinary Actions Online

Case ID: 2018059962701 The PDF file details the action taken, which is to bar (disqualify) the member from any association whatsoever with FINRA.

Please state you concerns in a civil, factual manner.
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Re: Prominent financial adviser fined $1M

Post by JBTX » Sun Oct 13, 2019 2:20 pm

Every few years my DW, who is otherwise very financially savvy, will hear some person on radio with some financial scheme and I'll have to try to explain what may go wrong. This has included various form of annuities (market upside with no downside!), life settlements, financial advisors who tout some sort of glorified moving average scheme predicting an imminent market collapse, etc. The point being if they can peak her interest they can suck a lot of people in.

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Re: Prominent financial adviser fined $1M

Post by abuss368 » Sun Oct 13, 2019 2:43 pm

Incredible. I would expect an American Greed episode in the future.
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