Galvin Demands Investor Refunds From Private Placement Deal

Conquest Capital asked Massachusetts-based investors to roll over 401(k)s into self-directed IRAs to buy real estate in Phoenix

More On Legal & Compliance

from The Advisor's Professional Library
  • The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations.  When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.    
  • 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.

On Thursday, Massachusetts securities regulators fined and censured Conquest Capital Partners, Conquest Phoenix Fund and Conquest Capital co-founder Ryan Gadles for selling privately placed securities to investors, who were urged to roll their 401(k) investments into a self-directed IRA.

According to regulators, the parties offered investors the chance to buy a home in the Phoenix area, renovate it and sell it for a profit via funds placed into self-directed IRAs. The state has ordered them to give investors a refund for the private placement.

“Investors should be on guard against efforts to steer them towards self-directed IRAs,” said William Galvin, secretary of the Commonwealth of Massachusetts' securities division, in a press release. “While they are legitimate, they can be used by unprincipled promoters to deceive investors as to the safety of the investment."

In September 2012, Gadles told the investors that he hadn’t raised the minimum amount of funds needed to buy and flip a home, $110,000. Earlier, he’d told them that they would earn 8% annually and could expect a projected three-year return of 13% to 17%.

Massachusetts regulators say the investors were never told that the deal would fall apart if the minimum capital needed to purchase a property was not raised.

However, they were told “the sooner we can get your money out of your IRA and 401(k), the sooner you can stop losing money.”

“Investors are often told that there is a custodian holding the investments, but they are not told of the limited role that such IRA custodians have in evaluating an investment, nor are they told of the often high fees associated with these accounts,” the secretary added.

“With the oncoming of the ‘Crowdfunding Era,’" he warned, "investors must be on guard against offerings which are unbalanced, one-sided, and replete with unbridled puffery.”

---

Check out Massachusetts Fines Citigroup Global $30M Over Leaked Research on ThinkAdvisor.

Reprints Discuss this story
This is where the comments go.