According to FINRA, Eric Carl Willer was suspended from association with any FINRA member in all capacities for nine months for recommending potential investors purchase bonds in two private placement offerings without having a reasonable basis to believe the bonds were suitable for any investor and for negligently distributing misleading communications concerning the offerings. No monetary sanction was imposed in light of Willer's financial status.
Willer was found in violation of suitability and communications rules. He recommended that potential investors purchase bonds in two private placement offerings without conducting adequate due diligence. Willer performed no investigation of the issuer or its management in connection with the offerings, other than reviewing offering documents prepared by the issuers and promoters. This minimal level of due diligence was inadequate for a reasonable basis suitability determination, which requires representatives to have a reasonable basis to believe that a recommendation is suitable for at least some investors.
Furthermore, the offering documents Willer used and distributed to potential investors contained multiple material misrepresentations that he failed to recognize. As a result of his failure to conduct reasonable due diligence of the issuer, its management, and the offerings, Willer had no reasonable basis to believe that the offerings were suitable. Additionally, Willer negligently misrepresented and omitted material facts when he distributed the misleading offering documents to potential investors, who collectively invested $460,000 in the offerings.
Private placement offerings involve securities that are not registered with the SEC and are typically sold to a limited number of investors. These investments often carry significant risks, including illiquidity, lack of public information, and heightened risk of fraud. Representatives recommending private placements have a heightened obligation to conduct thorough due diligence because these investments lack the disclosure and regulatory protections of registered securities. At a minimum, this due diligence should include investigating the issuer's business, financial condition, management team, use of proceeds, and risks.
Willer's reliance solely on offering documents prepared by the issuers and promoters was inadequate because these parties have obvious conflicts of interest and incentives to present the offerings in the most favorable light. Independent verification and investigation are essential. The fact that the offering documents contained material misrepresentations underscores the danger of taking promotional materials at face value. This case serves as a warning that representatives must conduct independent due diligence before recommending private placements, and that negligently distributing misleading materials can result in significant sanctions.
