The SEC allged that Kohli launched the DMS Funds that consisted of four emerging markets mutual fund series. Kohli allegedly solicited his own customers and clients to invest in the funds using prospectuses and other documents that contained misrepresentations overstating DMS Funds’ sophistication and ignored key risks associated with the investments. The SEC alleged that as the fund collapsed due to Kohli’s recklessness, Kohli engaged in three other frauds in an effort to keep the funds afloat. One such alleged fraud was that Kohli made material misrepresentations in connection with the sale of warrants 10 purchase Marshad stock – an entity Kohli controlled. In addition, the SEC accused Kohli of misappropriating investor money that he solicited for the purported purpose of making investments into one of the finds and instead used the money to pay fund expenses. Finally, the SEC accused Kohli of lieing to investozs in connection with the sale of Marshad promissory notes in a desperate attempt to raise money to cover fund expenses and delay the DMS Funds’ collapse.
According to Kohli’s brokercheck records Kohli was permitted by Trustmont to engage in DMS Financial, Inc. and DMS Funds. The providing of loans or selling of notes and other investments outside of a brokerage firm constitutes impermissible private securities transactions – a practice known in the industry as “selling away”.
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. However, even though when these incidents occur the brokerage firm claims ignorance of their advisor’s activities the firm is obligated under the FINRA rules to properly 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.
The investment fraud attorneys at Gana Weinstein LLP have represented hundreds of investors in securities related disputes including 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.