Among recent enforcement actions by FINRA were the expulsion of a firm for the fraudulent sale of about $3 million in senior secured zero-coupon notes and the censure and fine of another firm, suspension and fine of its principal, and bar of a representative over deceptive communications.
Also, the SEC charged immigration attorneys with fraud against immigrants seeking U.S. residency.
FINRA Expels Firm on Fraudulent Zero-Coupon Note Sales
HFP Capital Markets LLC was expelled from FINRA membership and ordered to pay $2,980,000, plus interest, in restitution to customers after the agency found it caused the fraudulent sale of approximately $3 million worth of senior secured zero-coupon notes.
According to FINRA, the firm sold the private offering of the notes to firm customers and in the offering and sales, knowingly misrepresented and omitted material facts about them.
The notes were misrepresented as collateralized by certain barrels of leftover mining materials (or ore concentrate) and that the collateral was sufficiently valuable to secure an investment in the notes. The ore concentrate was actually nearly worthless. In addition, the firm omitted to disclose material facts about how the offering proceeds were to be used, and about the ownership and management of the issuer.
While a few customers got money back after lodging complaints with the firm through so-called replacement transactions, the remaining customers lost their entire investment of $2.98 million and were not repaid. The firm also failed to conduct adequate due diligence on the offering or individuals involved, ignored red flags and failed to conduct any due diligence on third parties put forward as critical strategic partners for the business.
Without admitting or denying the findings, the firm consented to the sanctions.