Wall St. watchdog expels N.Y. brokerage for kickback scheme
Wed Oct 7, 2015 12:57pm EDT
By Suzanne Barlyn
reuters.com
A New York-based brokerage that engaged in a scheme to defraud investors by concealing kickbacks of fees for privately issued securities has been expelled from the securities industry, Wall Street's industry funded watchdog said on Wednesday.
Halcyon Cabot Partners Ltd, together with its chief executive and chief compliance officer, agreed beginning in May 2012 to help conceal a discount provided to a venture capital firm which had bought privately-issued securities in a cancer drug development company, FINRA said in a settlement.
Halcyon, CEO Michael Morris and Chief Compliance Officer Ronald Heineman neither admitted nor denied FINRA's allegations, according to a settlement with the regulator.
Schemes involving offerings or privately-issued securities, or "private placements" have long been a problem on Wall Street. The securities, typically issued by small and start-up companies, are sold privately to selected investors without being publicly traded or registered with regulators.
To carry out the scheme, Halcyon entered into a sham placement agreement with drug company Cell Therapeutics Inc to designate the brokerage to help find investors, FINRA said. But Halcyon did not perform any of those duties because the buyer, venture capital firm Socius Capital Group, LLC, was already in place, FINRA said.
Halcyon had also entered into separate sham consulting agreements with a Socius affiliate that had invested in Cell Therapeutics, now known as CTI BioPharma Corp, through which Halcyon funneled back nearly the entire $1.75 million placement fee it had earned as the intermediary.
This scheme allowed Cell Therapeutics Inc to conceal from investors that it was selling its shares at a discount, FINRA said.
Spokeswomen for Cell Therapeutics and Socius, neither of which were named in the FINRA case, could not be immediately reached for comment. Neither company is FINRA-regulated.
"What happened today is the result of a settlement that was proposed by my clients," said Maranda Fritz, a New York-based lawyer who represents Halcyon, Morris and Heineman. They reached the settlement "based on a great many factors including all the issues and costs associated in trying to litigate against FINRA," Fritz said.
A now-former Halcyon broker, Craig Josephberg, who also took part in the scheme, was barred in June, FINRA said. FINRA also cited other offenses by Josephberg, including that he made excessive trades in customers' accounts to boost commissions and also sold securities in states where he was not licensed.
Josephberg's lawyer was not immediately available for comment.
(Reporting by Suzanne Barlyn; Editing by Christian Plumb)
reuters.com |
