Last week, the Financial Industry Regulatory Authority (FINRA) censured and assessed a fine of $50,000 against a national investment firm, Paulson Investment Company LLC, in connection with its sale and solicitation of private placement offerings to investors, in violation of Rule 506 of Regulation D and Section 5 of the Securities Act of 1933. Among other things, Regulation D (more commonly known as Reg D) provides a legal “safe harbor” for investment firms to sell and market private placements, which are restricted securities (i.e., not traded on a public market and therefore carry more risk), to no more than 35 non-accredited investors, provided the firm has a pre-existing relationship with that investor. The law is intended to prevent advertising and marketing to non-accredited investors – a legal term for those who do not have the requisite financial means to bear risk or who are unsophisticated and cannot appreciate the risks of purchasing an investment that is typically illiquid and cannot readily be traded on a national exchange. In violation of Reg D, as well as FINRA Rule 2010 (requiring all member firms to conduct their business with high standards of commercial honor), FINRA found that Paulson solicited 11 individuals and sold six separate private placement offerings, totaling approximately $4.5 million, prior to having a pre-existing and substantive relationship with these investors.
Perhaps this barely registers as a newsworthy event; brokerage firms are censured and fined all the time by regulators, and for much more than $50,000. Paulson is considered a small to medium-sized firm and it is registered in 53 states and territories. The firm has been licensed as a member brokerage firm with FINRA since 1971 and has carried its registration as an investment advisory firm with the Securities and Exchange Commission (SEC) since 1983. However, there are other recent developments at Paulson, particularly at its 40 Wall Street office in New York City, which should give pause to any investor or prospective retiree.
While Paulson derives more than 50% of its revenue from underwriting activities, it also engages in general brokerage activities by buying and selling investments for retail investors. Among the brokers or registered employees at its Wall Street address, there are currently seven individuals with at least 3 or more public disclosures in the Central Registration Depository (CRD) known as BrokerCheck, a national database that tracks the background and disciplinary history of stockbrokers and other financial professional concerning customer complaints, regulatory or criminal events, and other financial disclosures (such as personal bankruptcy or tax liens). This is significant, because, according to FINRA, most brokers have a clean history, with approximately 4% having been subject to at least one customer complaint, but only less than 0.41% with 3 or more BrokerCheck complaints. Paulson’s Wall Street office alone employs seven such individuals with 3 or more disclosures. But this is only scratching the surface.
Taking a deeper dive, five of these financial professionals have 8 or more BrokerCheck disclosures, with several having double digit complaints, including Andre Pierre Davis with 18 such disclosures. Any investor who has assets invested with these seven financial professionals should thus have internal alarm bells going off:
- Gary Lawrance Saccaro – 16 disclosures
- Robert Joseph Setteducati – 10 disclosures
- Siddharth P Reddy – 3 disclosures
- Timothy Robin Touloukian – 10 disclosures
- Levert Caldwell – 8 disclosures
- Andre Pierre Davis – 18 disclosures
- Kenneth Williams – 4 disclosures
All the above individuals are currently licensed and registered with Paulson; however, the latter three – Levert Caldwell, Andre Davis, and Kenneth Williams – are recent hires who all joined Paulson within the last year. Worse, all three of these individuals left another defunct brokerage firm, First Standard Financial Company, LLC, which had its license cancelled by FINRA last month after having its assets seized and state license revoked by the New Jersey Bureau of Securities for perpetrating a massive fraud on retail customers, illicitly charging more than $28.7 million in excessive commissions. Several brokers from First Standard have already been barred from the industry, but Messrs. Caldwell, Davis, and Williams remain licensed (for now) and have been inexplicably taken in en masse by Paulson and given a new platform to trade on. This should signal risk for any investor.
For the last twenty years, Malecki Law has represented investors and retirees to help them recover losses in the stock market caused by the misrepresentations and misconduct of risky firms like Paulson and First Standard, as well as rogue financial professionals like Levert Caldwell, Andre Davis, and Kenneth Williams. If you have incurred investment losses with your financial adviser or any of these individuals, call us for a free assessment. Many of our clients choose a contingency fee arrangement, which means you do not pay unless we recover.