Securities Lawyers Blog
According to records kept by The Financial Industry Regulatory Authority (FINRA) financial advisor Joseph Hain (Hain), currently employed by Noble Capital Markets, Inc. has been subject to at least two customer complaints during the course of his career. Hain’s customer complaints alleges that Hain misrepresented private placement investments among other allegations of misconduct relating to the handling of their accounts.
At Gana Weinstein LLP, we often hear from investors who were recommended by their advisors to purchase high risk private placement investments and suffered substantial – often crushing losses as a result. Our firm regularly represents these investors in disputes with the advisors and brokers who sold these products without adequate disclosure. Brokers have a responsibility to conduct due diligence on all private placement offerings. Due diligence includes an investigation into the investment’s properties including its benefits, risks, tax consequences, issuer, history, and other relevant factors.
In January 2020 a customer complained that Hain violated the securities laws by alleging that Hain made investments recommendations that were materially misrepresented concerning an investment in a private placement. The claim alleges $500,000 in damages and is currently pending.
Private placements are bond, equity, or other debt instruments issued in reliance on a statutory or rule-based exemption from the registration requirements administered by the (SEC). The private placement industry was created based upon the reasoning that exempting private placements from registration is appropriate where purchasers have the economic ability, sophistication, and the professional advice necessary to do without the regular protection afforded by the disclosures required through registration. According to sources, a total of $33.5 billion was raised in 647 transactions through the third quarter of 2018.
Recently FINRA put out an announcement that called out the shortcomings it observed in the industry when it comes to due diligence. FINRA found that firms “failed to conduct reasonable diligence on private placements and failed to meet their supervisory requirements.” FINRA stated that firms that performed “reasonable diligence conducted meaningful, independent research on material aspects of the offering; identified any red flags with the offering or the issuer; and addressed and resolved concerns that would be relevant to a potential investor.” Firms should have a due diligence process such as “creating a due diligence committee (at larger firms) or otherwise formally designating one or more qualified persons (at smaller firms), and charging them with investigating and determining whether to approve the offering for sale to investors.” The crucial ingredient is for “firms independently verified information that was key to the performance of the offering…”
Common failures in conducting due diligence by brokerage firm include merely reviewing the offering memorandum and other relevant offering documentation but not discussing the offering in greater detail with the issuer or independently verifying research or analyzing other material aspects of the offerings. FINRA also found that sometimes firms performed no additional research about new offerings because they relied on their experience with the same issuer in previous offerings. And so if a firm approved of an offering from the same issuer three years ago then that meant the issuer was approved for future offerings without meaningful review. Finally, FINRA observed that firms did not investigate red flags identified during the reasonable diligence process.
Due diligence on private placements is of the utmost importance because there is no publicly available information on this companies and businesses and the only access to material information comes from the brokerage firm.
Hain entered the securities industry in 2005. From May 2013 until March 2016 Hain was associated with Aegis Capital Crop. From March 2016 until March 2017 Hain was registered with Paulson Investment Company LLC. Since March 2017 Hain has been associated with Noble Capital out of the firm’s Boca Raton, Florida office location.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.