Harold Connell - Private Placement Memorandums - Undisclosed Self-Offerings - Unregistered Regulation D Offerings - Fraud, Deceit and Misrepresentation - Boca Raton, Florida Finra Arbitration Attorney
Harold Lee Connell (CRD #1482623, Pinecrest, Florida)
Recently, the Financial Industry Regulatory Authority announced that Harold Lee Connell entered into an Acceptance, Waiver and Consent which barred Connell from association with any FINRA member in all capacities. Without admitting or denying the findings, Connell consented to the sanction and to the entry of findings that he willfully violated Section 10(b) of the Exchange Act and Rule 10b-5, and FINRA Rules 2010 and 2020 by participating in the sale of three unregistered Regulation D offerings through misrepresentations and omissions.
The findings stated that Connell and others at his member firm raised over $4.5 million from individual investors in connection with the sale of the three unregistered Regulation D offerings. The private placement memorandums (PPMs) for the three offerings provided that investors' funds would be used to make investments in a variety of companies. However, the first offering was invested 85 percent in one penny stock company. The other two offerings were primarily undisclosed self-offerings. Investors' funds were transferred to the firm's holding company, and from there, to the firm. The third offering's PPM did not disclose that the companies that received their funds, the firm and its holding company, were deeply in debt. The third offering's PPM also did not disclose that investor funds would be used to pay non-firm expenses and money owed to prior offering investors. None of the investors recouped any of their principal investments. The findings also stated that Connell sold the offerings without a reasonable basis to believe that they were suitable for any investor. The first offering was not suitable for any investors because appropriate due diligence was not performed on the product. The second and third offerings were not suitable for any investors because they raised money for the firm's holding company and the firm. Also, contrary to the representations in the second and third offerings' PPMs, the offerings' funds were not invested in a diverse basket of investments.
Connell, as the chief executive officer (CEO), president, principal supervisor and owner of the firm should not have permitted the marketing or sale of these products. The findings also included that Connell failed to reasonably supervise two registered representatives and an associated person involved in the sales of these products and the management of the funds obtained from the customers. Connell was required to investigate red flags and act upon the results of such an investigation. The two representatives had extensive contacts with their customers in Spanish. In fact, they and most of their investors were native Spanish speakers. Connell did not speak or understand Spanish. Nevertheless, Connell did not obtain translations of correspondence between the firm representatives and the customers, nor did he participate, with a translator, in any discussions with the Spanish-speaking customers at the point of sale. The associated person was not licensed by FINRA. Despite the associated person's dual role as co-manager of the first offering and manager of the other two on the one hand, and as an associated person of the firm on the other hand, Connell did not take effective action to ensure that he did not engage in activities requiring registration. In addition, Connell allowed one of the representatives to hold himself out as a director of the firm's Latin American business and to supervise registered representatives when Connell knew that he did not have a General Securities Principal license. (FINRA Case #2016051493702). To review the entire Acceptance, Waiver and Consent, please follow this link: Connell AWC.pdf
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