On September 30, 2013, FINRA filed an amended complaint against John Carris Investments LLC (JCI), its founder George Carris and others. In the complaint, FINRA alleges JCI engaged in: stock manipulation, unsuitable self-offerings of securities, operating a securities business without sufficient net capital, use of firm funds to pay the expenses of principal officers at JCI, providing false tax documents, and failing to pay payroll taxes.
JCI is a Wall Street Investment Bank and wholly-owned subsidiary of Invictus Capital, Inc. (Invictus). In 2009, Carris formed JCI. Carris has served as JCI’s CEO, President, and Managing Director of Investment Banking since its inception. Shortly after forming JCI, Carris formed Invictus and transferred complete ownership of JCI to Invictus.
FINRA alleges that from May 1, 2010 through September 30, 2010, JCI’s head trader Jason Barter engaged in manipulative trading of Fibrocell Science, Inc. (Fibrocell), a biotechnology company specializing in skin and tissue rejuvenation. During that period, JCI acted as a placement agent for Fibrocell and sold shares of Fibrocell through unregistered PIPE deals. A PIPE deal is a private investment in public equity, which companies pursue when capital markets cannot provide financing and traditional alternatives do not exist for that issuer.
JCI is accused of violating FINRA Rule 2020 and Rule 10b-5 of the Securities and Exchange Act of 1934 by taking part in pre-arraigned trades and improperly placing Fibrocell securities in the accounts of JCI customers. FINRA Rule 2020 states that members cannot use any manipulative, deceptive or otherwise fraudulent device or contrivance in the sale of securities. As publically traded securities are valued contemporaneously, a broker may deceive the market by improperly selling securities at a pre-set price. The complaint alleges that JCI’s pre-arraigned trades created an artificially high price for Fibrocell shares, along with the false appearance of liquidity; therefore, any sale of Fibrocell shares made between May 1, 2010 and September 30, 2010 were likely improper. Moreover, from May 3, 2013 through May 21, 2013 JCI allegedly withheld material information from its customers by failing to disclose that the common shares of Fibrocell it sold to customers were actually privately held by Carris.
Additionally, from October 2010 through September 2012, JCI is accused of defrauding customers through the sale of Invictus stock issued to JCI in four Rule 506 Offerings. In these offerings to JCI, Invictus declined to list both its revenue or net-asset value, inviting the assumption that JCI was their sole source of revenue. Subsequent to the Rule 506 offerings, JCI is alleged to have fraudulently sold those shares to its investors. Specifically, Carris and JCI are accused of; misleading investors of the poor performance by Invictus and JCI, failing to disclose personal use of firm funds by Carris, failing to disclose that Invictus recently defaulted on notes worth $1.9 million, and failing to disclose that distributions were paid to early investors from new investors’ funds in a “Ponzi-like manner.”
JCI is accused of violating FINRA Rule 2010, which requires members to observe high standards of commercial honor and act with the just and equitable principles of trade in the conduct of their business. In the past, brokers accused of violating Rule 2010 have faced fines, suspensions, or even complete revocations of their licenses.
By: Alex Truitt