private placements

Summary of the Case: 

Esoteric Advisors was engaged by the claimants for a FINRA arbitration against a Broker-Dealer. The claimants included several generations of clients who were solicited and sold closely-held, dealer-created private placements. This case involved a total lack of suitability that spanned approximately 15 years of activity, much of which occurred under Regulation Best Interest (Reg BI).

The Broker-Dealer operated a seperate company that created private placements in various securities, which were purported to be special assets exclusively available through their firm. This operation represented a clear conflict of interest, with private placements sold to various ages and backgrounds within the same family.

The complexity of the case involved tracing all private placement assets that ended up into the various broker accounts of the clients. The financial advisor involved made wild speculative guarantee claims, essentially encouraged by a corporate culture of self-dealing. The discovery material and analysis of the assets in the accounts clearly indicated a total abrogation of suitability standards and Reg BI. Additionally, Esoteric Advisors was able to demonstrate that several of these clients fell under California’s fiduciary broker-dealer rules.

Disposition: 

The respondent firm settled the case.