Securities Lawyers Blog
The Financial Industry Regulatory Authority (FINRA) recently barred broker Michael Evangelista (Evangelista) concerning allegations that between 2006 and 2011, Evangelista referred approximately six of his firm customers to invest in real estate securities issued by ABC Corp. (ABC), an entity that purportedly invested in real estate in Pennsylvania and neighboring states. FINRA alleged that the customer investments totaled over $3 million while Evangelista received at least $50,000 in compensation in connection with these referrals. FINRA found that Evangelista did not disclose to his brokerage firms that these customers were purchasing securities away from the firm, a practice known as “selling away”, or that he was being compensated in connection with his referrals.
Evangelista entered the securities industry in 1993. From 1994 to December 2012, he was registered with the following FINRA firms: (1) Capital Analysts, Inc. until to December 2007; (2) Cambridge Investment Research, Inc. from January 2008 to May 2012; and (3) Comprehensive Asset Management and Servicing, Inc. (Comprehensive) from May 2012 to December 2012. Comprehensive filed a Form U5 on December 20, 2012, stating that Evangelista was terminated because he became the subject of a customer complaint.
FINRA alleged that starting in 2006, Evangelista participated in meetings with certain of his brokerage clients the president of ABC to have the clients invest with ABC. The investments were for the development of specific parcels of property. When client’s invested in ABC they acquired either promissory notes issued or limited partnership agreements. The promissory notes allegedly provided for a repayment of principal plus interest. Investments in the form of limited partnership agreements had clients receiving a percentage interest in the partnership that would yield a minimum return in the form of interest paid on a per annum basis and a return of principal.
FINRA alleged that at least six of Evangelista’s clients invested over $3 million in ABC issued securities. In addition to these clients, FINRA alleged that Evangelista introduced others who were not his brokerage firm clients to MG, and some of these individuals invested in ABC securities. FINRA found that Evangelista received compensation for referring individuals to invest in ABC. FINRA found that Evangelista received commissions of 4% of amounts invested and also subsequently received compensation in the form of equity stakes in certain ABC limited partnership. FINRA found that Evangelista did not disclose to the brokerage firms that employed him that he was referring customers to invest in ABC or that he received compensation for these referrals.
FINRA also found that Evangelista violated FINRA’s suitability rules by recommending ABC securities to customers. NASD Rule 2310 requires that a registered representative have reasonable grounds for believing that the recommendation is suitable for his customer on the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs. Determining reasonable basis suitability includes conducting due diligence to ensure that persons who recommend a product understand its nature, as well as its risks and rewards.
FINRA found that Evangelista lacked a reasonable basis to recommend the purchase of securities issued by ABC to his customers and failed to perform a reasonable investigation on the investment. FINRA found that Evangelista simply took representations ABC’s president concerning ABC at face value without undertaking adequate independent steps to verify them and he made insufficient efforts to understand the promissory notes and limited partnership agreements.
Investors who have suffered losses 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 unsuitable investments. Our consultations are free of charge and the firm is only compensated if you recover.