The Financial Industry Regulatory Authority said Tuesday that it expelled Red River Securities from the industry and barred CEO Brian Keith Hardwick; the parties also must pay $24.6 million to clients for fraudulent sales of interests in five oil and gas ventures.
FINRA’s hearing panel found Hardwick and others at Red River misrepresented and omitted information regarding the investments for about four years and that their actions “involved sales in the risky joint ventures.”
The panel characterized Red River Securities and Hardwick’s misconduct as “egregious.” It noted, for instance, the they failed to have a robust supervisory system for offerings in the “high-risk ventures” but did produce substantial monetary gain for themselves.
The group received $3.6 million in due diligence fees and commissions from five offerings, along with management fees and money earned through its ownership of affiliate Regal Energy. Investors, however, received less than $500,000 from the over $25 million they paid for the offerings.
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Specific sales to two clients were described in detail as being unsuitable. In one case, the investor was a 74-year-old, self-employed farmer and dog breeder with a net worth of $2 million, liquidity of $20,000, and $150,000 in annual income.
“Given her level of liquidity and her self-employed/seasonal employment situation, the hearing panel found that her investment of $94,754, representing well over half of her annual income, in three risky oil and gas ventures in a period of a year, was not suitable,” the regulatory group explained.