A former Morgan Stanley broker and Wells Fargo advisor has been barred from the industry by the Securities and Exchange Commission for using personal email and text messages to solicit unlawful business from pro-athlete clients.
According to the SEC’s Monday order, beginning in 2009 and continuing into 2012, Aaron Parthemer of Fort Lauderdale, Florida, participated in selling more than $5 million of unregistered, illiquid securities to certain of his professional athlete brokerage customers and investment advisory clients in an internet branding company known as Global Village Concerns, Inc. (GVC), based in San Diego.
Parthemer, the order states, was issued GVC stock options and warrants provided by GVC, and his conduct with respect to the sale of GVC securities “occurred outside and independent of his employment with registered broker-dealers.”
From June 2009 to October 2011 and from October 2011 to the end of April 2015, the order states that Parthemer was a registered rep and investment advisor rep of Morgan Stanley Smith Barney and Wells Fargo Advisors, respectively.
During this time, MSSB and WFA were dually registered with the SEC as broker-dealers and investment advisors.
From 2005 until December 2012, Parthemer was a National Football League Players Association Registered Financial Advisor.
Parthemer, the order states, “misrepresented and omitted material information about the GVC investments to his investment advisory clients, some of which was based on information provided to Parthemer by GVC.”
He presented this information to his advisory clients “without conducting any due diligence to verify any of the information he provided to his advisory clients,” and he also used “his personal communication devices and emails to communicate with his brokerage customers and others about firm business without causing copies of those communications to be sent to or preserved on the broker-dealers’ respective email servers or preserved in paper form,” according to the order.
From 2009 through 2013, Parthemer had approximately 40 active or retired professional athletes as brokerage customers and/or investment advisory clients, most of whom are members of NFLPA.
During most of that time, according to the SEC, “Parthemer was a NFLPA Advisor and subject to the Regulations and Code of Conduct Governing Registered Player Financial Advisors promulgated by the NFLPA.”
Some Parthemer customers were brokerage customers, while others were fee-based investment advisory clients that paid advisory fees for which Parthemer recommended and managed their investments.
GVC conducted Series A and Series B Preferred Stock Offerings from 2009 to 2012 through which it collectively raised more than $4.1 million and convertible note offerings which raised at least $2.5 million in 2012. GVC is no longer operating.
The SEC states that in May or June 2009, the GVC CEO, an existing brokerage customer of Parthemer, turned to Parthemer to help GVC raise capital and find investors.
Parthemer “solicited and recommended investments in GVC to his brokerage customers and advisory clients, presenting information provided to him by GVC’s CEO, and beginning in the summer of 2009 certain of Parthemer’s brokerage customers and advisory clients began investing in GVC. Parthemer’s brokerage customers and advisory clients served as the primary source of capital raised by GVC, representing approximately 75% of the approximate $4.2 million in capital raised by the Series A and B offerings, and 100% of the $2.5 million raised in capital by the GVC Convertible Note offerings.”
The SEC order further states that Parthemer “never told MSSB or WFA of any of the GVC offerings, and neither MSSB nor WFA ever approved or sponsored these offerings.”
He also “misrepresented and omitted material information with respect to GVC during his introductions and solicitations to his advisory clients, and when providing them GVC investment updates.”
As Cipperman Compliance Services notes in commenting on the order, the SEC alleges that the advisor “failed to submit personal communications that concerned brokerage business to his broker-dealers as required by the firms’ policies and procedures,” and has charged the respondent with aiding and abetting the broker-dealers’ violations of their obligations to retain emails and other client communications.
The SEC maintains “that the advisor sold securities to clients without conducting adequate due diligence or providing sufficient disclosure about the offering or his conflicts of interest,” Cipperman adds.
Cipperman opines that the case is a "good example of the SEC properly asserting individual accountability rather than only punishing their organizations. Every employee at a regulated entity should have a regulatory responsibility to assist with securities laws compliance, and the regulators should prosecute individuals who intentionally evade internal policies to further wrongdoing."
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