The Financial Industry Regulatory Authority suspended a broker for nine months after he sold $625,000 in Woodbridge Group of Companies’ promissory notes to five investors without first seeking approval from Sigma Financial, the firm he was registered with at the time.
Advisor Fredrick M. Randhahn signed a letter of acceptance, waiver and consent on Thursday in which he agreed to the suspension and to pay a $5,000 fine. He also agreed to disgorgement of the nearly $33,200 in commissions he received from the transactions plus interest.
Between June 2016 and September 2017, “Randhahn solicited investors to purchase promissory notes relating to” the Woodbridge Group, a “purported real-estate investment fund,” FINRA said.
The Securities and Exchange Commission found Woodbridge actually operated as a massive Ponzi scheme from July 2012 through December 2017. In October, ex-Woodbridge CEO Robert Shapiro was sentenced to 25 years in prison by a federal judge in Miami for leading the $1.2 billion fraud scheme that hurt some 8,400 investors.
Two of the five investors whom Randhahn sold the $625,000 of Woodbridge notes to were also clients of Sigma, FINRA said, noting that Randhahn also personally invested $125,000 in Woodbridge notes.
He participated in those private securities transactions without providing prior written notice to Sigma, violating FINRA Rules 2010 and 3280.
After registering with FINRA through Sigma on Jan. 13, 2012, Randhahn stayed with the broker-dealer until his registration was terminated on Aug. 24, 2018. According to the Uniform Termination Notice for Securities Industry Registration filed by Sigma, it discharged Randhahn because it “ha[d] reason to believe the representative sold unapproved investments to customers.”
Randhahn isn’t currently registered or associated with a FINRA member firm. He was still listed Friday as a business consultant for financial consulting firm Upstream Investment Partners on that company’s LinkedIn page, as well as his own. Sigma serves as that firm’s broker dealer, according to Upstream’s website.
But Jon Holmes, a founding partner of Upstream, told ThinkAdvisor: “Fred is no longer affiliated with Upstream or our BD, Sigma Financial.” Holmes didn’t specify when or why the relationship ended. Randhahn and Sigma didn’t immediately respond to requests for comment.
Randhahn has 32 years of experience as an advisor and has been affiliated with a total of seven firms, including Ameriprise Financial, Cigna and Merrill Lynch, according to BrokerCheck. There were no complaints against him until the Sigma termination of August 2018; a customer dispute from Oct. 30, 2018 is still pending.
The client accused Randhahn of selling unapproved investments in 2016 and 2017 that were “high risk and fraudulent,” according to BrokerCheck. The customer requested damages of $400,000.