Securities Lawyers Blog
The Financial Industry Regulatory Authority (FINRA) barred broker Jerry McGlothlin from associating with any member firm for engaging in outside business activities, engaging in private securities transactions, providing false responses on annual compliance questionnaires, and failing to respond to FINRA requests for information.
Between May 2003, and October 2012, McGlothlin was registered with FINRA through his association with Lincoln Financial Securities Corporation (“Lincoln Financial”) and its predecessor Jefferson Pilot Securities, Inc. On October 12, 2012, Lincoln Financial filed a Uniform Termination Notice (Form U5) terminating McGlothlin’s registration with the firm.
FINRA alleged that McGlothlin engaged in outside business activities without notifying Lincoln Financial, in violation of NASD Conduct Rules 3030 and 2110, and FINRA Conduct Rules 3270 and 2010. FINRA alleged that while McGlothlin was employed with Lincoln Financial he engaged in business activities with International Business Law Center, Inc. (IBLC), a/k/a Internet Business Law Services and IBLS Online Education, Inc. (IBLS Online). Both IBLC and IBLS Online provide internet legal services and learning programs.
FINRA established McGlothlin’s association with both IBLC and IBLS Online through evidence that the companies’ physical address and telephone number were the same as McGlothlin’s Lincoln Financial branch office. In addition, McGlothlin was a significant shareholder of IBLC and IBLS Online. Since 2003, McGlothlin held a 15 percent ownership interest in IBLC and a 20 percent ownership interest in IBLS Online. Finally, McGlothlin held officer positions at each company. McGlothlin has been the Chief Financial Officer (CFO) and President of IBLC since May 2003. For IBLS Online, McGlothlin has been the company’s President since December 2003 and the CFO since November 2009.
FINRA alleged that McGlothlin failed to notify Lincoln Financial of his outside business activities with IBLC or IBLS Online. FINRA Rule 3270 and NASD Rule 3030 provide that no registered person “may be an employee,…officer,…or be compensated…from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member…” Brokerage firms are also obligated under FINRA Rule 3010 to implement a supervisory system that detect and enforce the foregoing requirement. The purpose Rules 3270 and 3030 is to provide firms with an opportunity to object to activities and exercise appropriate supervision over the broker.
FINRA alleged that McGlothlin also engaged in private securities transactions without providing Lincoln Financial with written notice, a practice known as “selling away.” Selling away is a violation of NASD Rules 3040 and 2110, and FINRA Rule 2010. FINRA alleged that McGlothlin’s participated in the sale of common stock of both IBLC and IBLS Online. IBLC raised $976,689 through the sales of over one million shares of common stock to 31 investors through a private placement offering between July 2001 and July 2007.
It was also alleged that IBLS Online raised $1,010,709 by selling 1.045 million shares of common stock to 43 investors between December 2003 and November 2007. FINRA obtained evidence that McGlothlin, in his capacity as President of IBLS Online, signed the stock certificates for the IBLS Online investors, employees, and himself. FINRA alleged that through at least October 4, 2011, McGlothlin continued to participate in private securities transactions with IBLS Online by re-issuing and replacing stock certificates for investors and responding to investor questions and concerns about their investments.
McGlothlin did not notify Lincoln Financial of his private securities transactions with IBLC or IBLS Online or seek permission for the sales. NASD Rule 3040 provides that “[p]rior to participating in any private securities transaction, an associated person shall provide written notice to the member…” Under FINRA Rule 3010, Lincoln Financial was obligated to implement a supervisory system designed to detect and enforce the foregoing requirement.
As a result of the FINRA investigation, McGlothlin was barred from the securities industry. The attorneys at Gana Weinstein LLP are experienced in investigating claims of selling away. 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.