A Financial Industry Regulatory Authority (FINRA) hearing panel on Tuesday sanctioned Avenir Financial Group, fining the New York-based firm $229,000 and suspending it for two years from engaging in any self-offerings of securities for misconduct including the fraudulent sales of equity interests in the firm and promissory notes to elderly investors.
The hearing panel also barred Avenir’s former Chief Executive Officer and Chief Compliance Officer Michael Todd Clements from the securities industry for fraud, suspended registered rep Karim Ahmed Ibrahim (aka Chris Allen) for two years for fraud and ordered Ibrahim to disgorge his $25,000 commission.
Avenir, Clements and Ibrahim were ordered to offer rescission to defrauded customers. The hearing panel dismissed the charge that Clements aided and abetted the fraud, as well as the charge that Avenir misused customer funds, according to FINRA.
The decision resolves charges brought by FINRA’s enforcement division in April 2015. Since May 2015, the firm, Clements and Ibrahim have been subject to a temporary cease-and-desist order pending the resolution of the charges.
Unless the hearing panel’s decision is appealed to FINRA’s National Adjudicatory Council (NAC), or is called for review by the NAC, it will become final after 45 days.
FINRA also found that Avenir failed to provide to customers written disclosures regarding compensation from the sales and the use of proceeds in connection with the equity offerings, and inadequately supervised the firm’s capital raising.
The panel found that Avenir, Clements and Ibrahim “willfully misrepresented or omitted material facts in connection with sales of Avenir equity interests.” The firm also “willfully made misrepresentations” in the sale of debt and equity interests in the holding company of the firm’s branch office.
According to the panel’s decision, Avenir, which was thinly capitalized and in need of an immediate capital infusion to comply with net capital rules, sought funds from investors through an equity self-offering in 2013. Clements, who oversaw Ibrahim’s capital-raising efforts, directed Ibrahim to raise capital from customers who were told their funds would be used for Avenir’s day-to-day operations and growth.
However, the decision notes Clements failed to inform Ibrahim of crucial details, “including the firm’s precarious financial situation.”
In one instance, a 92-year-old customer was told his $250,000 investment would be used to grow the firm and fund its day-to-day operations, and that one day his investment would be returned “in a very large amount.”
Beyond the purchase agreement, “Ibrahim did not provide the customer with any written materials, including any written information about the firm,” FINRA said. “Ibrahim admitted in testimony prior to the hearing that he was aware that Avenir faced a dire regulatory capital situation, yet he did not disclose this material fact to the customer.”
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