Securities Lawyers Blog
The Financial Industry Regulatory Authority (FINRA) recently sanctioned Source Capital Group (Source Capital) registered representatives Kevin Cline (Cline), Robert Burr (Burr), Vincent Christopher (Christopher), and Thomas Gilleland (Gilleland). FINRA’s findings concerned allegations that the brokers failed to adequately disclose material facts and made sales through misstatements in oil and gas partnership interests in Blue Ridge Securities (Blue Ridge) and Argyle Securities. (Argyle).
According to FINRA, from at least October 11, 2006, and December 17, 2012, the named brokers violated the federal securities laws and FINRA rules in connection with selling Blue Ridge and Argyle offerings. Cline is the branch office manager for Source Capital’s Bowling Green, Kentucky branch office on Adams Street and Burr managed the Wright Street office where Christopher and Gilleland were brokers. Source Capital’s Adam Street branch office was the sole seller of private placement offerings of oil and gas securities issued by Blue Ridge’s limited partnerships all of which were managed by Blue Ridge Group, Inc. Source Capital’s Wright Street branch office was the sole seller of private offerings of Argyle limited partnerships managed by Argyle Energy, Inc. Blue Ridge and Argyle were both housed at the Adams Street branch office and were owned by Robert “Bob” Burr, the father of Burr as the controlling stockholder and former officer of both Blue Ridge and Argyle.
FINRA alleged that Cline failed to adequately disclose material information in selling Blue Ridge to investors. Specifically, FINRA found that Blue Ridge gave money to Cline that Cline used to pay Source Capital representatives a $2,000 monthly salary in advance of their draws which were not always repaid. FINRA concluded that the failure to adequately disclose that Cline used Blue Ridge funds to pay compensation to Source representatives was a material omission in violation of FINRA Rule 2010 and NASD Rule 2110, and Section 17(a)(2) of the Securities Act of 1 933, 15 U.S.C. § 77q(a)(2).
FINRA also alleged that Christopher and Gilliland made misstatements in sales pitches to potential customers to invest in Argyle. Specifically, FINRA alleged that Christopher and Gilleland made exaggerated promises to customers regarding the oil and gas interests in multiple emails. For example, in a December 3, 2009 email, Gilleland wrote to a potential customer that “I have a very rare opportunity to you,…[in which you have] a potential of 6-8 times your money…For the first time ever, Argyle has included a producing natural gas well which will show you 25-30% annually right out of the gate! There is no guesswork here, the well is already drilled and producing averaging 7 million cubic feet of gas per day. Unbelievable!”
FINRA alleged that other emails made similar exaggerated claims describing a potential offering as a “slam dunk” and as “the most conservative program I have ever offered.” According to FINRA, the customer who received the “slam dunk” email invested $10,000 in Argyle oil gas securities in January 2010 and two additional oil and gas investments totaling $16,400 in 2010.
FINRA found that these emails were communications with the public that violated NASD Rule 2210(d)(1), requiring all communications to be fair and balanced, and prohibiting exaggerated, unwarranted, and misleading statements and claims. Finally, FINRA found that Burr failed to adequately supervise the sale of Argyle. Burr supervised the Wright Street Source Capital office where Gilleland and Christopher sent the allegedly misleading and exaggerated emails failed to supervise their activities by failing to adequately review the communications before they were sent to customers in violation of NASD Rule 3010 and FINRA Rule 2010.
The attorneys at Gana Weinstein LLP are experienced in investigating claims concerning misrepresentation in the sale of oil and gas securities. Our attorneys can help you detect and uncover suspicious activity in your accounts. Our consultations are free of charge and the firm is only compensated if you recover.