Securities Lawyers Blog
According to BrokerCheck records kept by The Financial Industry Regulatory Authority (FINRA) advisor John Krohn (Krohn), formerly associated with Principal Securities, Inc. (Principal Securities) in West Des Moines, Iowa was suspended and sanctioned concerning allegations that Krohn engaged in private securities transactions.
FINRA alleged that between April 2014 and January 2017, Krohn served as an officer or a director of four companies, including one that invested in early-stage and distressed companies. In addition, between December 2012 and December 2016, Krohn was alleged to have made more than two dozen purchases totaling $7.9 million of ten companies’ securities. FINRA alleged that Krohn did not notify Principal Securities about those transactions, his role in them, and whether he had received or expected to receive compensation. In addition, FINRA alleged that Krohn made some of those purchases through the investing company that he owned jointly with a customer.
Krohn disclosed a number of outside business activities including outside insurance business and tax preparation. In addition, Krohn also disclosed involvement with Domiknow as a board member, Spotlight Innovation, Inc., as a board member, Tax Saver Plus, and Cash Flow Structure Group.
The allegations concerning private securities transactions are often accompanied by claims of engaging in outside business activities. Private securities transactions is a practice known in the industry as “selling away” – a serious violation of the securities laws.
In the industry the term selling away refers to when a financial advisor solicits investments in companies, promissory notes, or other securities that are not pre-approved by the broker’s affiliated firm. Firms attempt to disclaim liability for investments sold away by their brokers by claiming ignorance of their advisor’s activities. However, federal securities laws and the FINRA rules require firms to monitor and supervise its employees in order to detect and prevent brokers from offering investments in this fashion. In order to properly supervise their brokers each firm is required to have procedures in order to monitor the activities of each advisor’s activities and interaction with the public. Selling away misconduct often occurs where brokerage firms either fail to put in place a reasonable supervisory system or fail to actually implement that system. Supervisory failures allow brokers to engage in unsupervised misconduct that can include all manner improper conduct including selling away.
In cases of selling away the investor is unaware that the advisor’s investments are improper. In many of these cases the investor will not learn that the broker’s activities were wrongful until after the investment scheme is publicized, the broker is fired or charged by law enforcement, or stops returning client calls altogether.
Krohn entered the securities industry in 1996. From 1996 until January 2017 Krohn was associated with Principal Securities.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. Investors may be able recover their losses through securities arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases of selling away and brokerage firms failure to supervise their representatives. Our consultations are free of charge and the firm is only compensated if you recover.