More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Code of Ethics Rule The Code of Ethics Rule, found in Rule 204A-1, uses severe consequences for violation to help ensure investment advisors will do the right thing.
The Financial Industry Regulatory Authority said Thursday that it had levied a temporary cease-and-desist order against Washington-based Success Trade Securities and its CEO and president, Fuad Ahmed, for fraud involving 58 investors, many of whom are current or former NFL and NBA players.
Ahmed and other registered reps at the firm sold more than $18 million in Success Trade promissory notes to 58 investors, many of whom are current or former NFL and NBA players, while misrepresenting or omitting material facts, FINRA said.
FINRA said Ahmed and the company agreed to the cease-and-desist order.
Many of the players involved were represented by Jade Private Wealth Management, which referred clients to Success Trade in exchange for kickbacks, according to Yahoo Sports, which has been investigating the matter for 18 months. Jade's client list fluctuated but has included Cleveland Browns cornerback Joe Haden, New York Giants wideout Victor Cruz and San Francisco 49ers tight end Vernon Davis, the site reported.
FINRA’s complaint alleges that Ahmed and Success Trade Securities, an online broker-dealer, said they were raising $5 million through the sale of promissory notes—even as the sales exceeded the original offering by more than 300%. Most of the notes promised to pay an annual interest rate of 12.5% on a monthly basis over three years, with some notes promising to pay interest as high as 26%.
FINRA also alleges that Ahmed and Success Trade Securities failed to disclose the amount of the company’s existing debt to investors and that it was unable to make future interest payments without raising money from new investors.
In addition, FINRA charges that Ahmed and Success Trade Securities misrepresented how the proceeds would be used, instead improperly using the funds to make unsecured loans to Ahmed and to make interest payments to existing noteholders.
FINRA further alleges that Ahmed and Success Trade Securities misrepresented the rate of return and exempt status of the private placement offering through which the notes were sold.
As of April 4, Success Trade, the parent company, had $25,000 in its bank accounts, the complaint says.
The athletes involved were not named in the complaint.------
Read more on AdvisorOne: