According to FINRA, Joshua David Nicholas was barred from association with any FINRA member in all capacities on January 24, 2022, for converting customer funds, providing a fictitious brokerage statement, and engaging in undisclosed outside business activities.
Nicholas engaged in futures trading through his corporate entity, which was an outside business activity (OBA). His futures trading for two customers, a married couple, resulted in losses exceeding $1 million. In a purported effort to recoup their losses, Nicholas convinced the customers to invest $300,000 in a promissory note with his entity so it could invest the funds in securities on their behalf.
However, Nicholas transferred $280,000 from his entity's bank account to his personal account and spent approximately $58,000 on personal expenses. This constituted conversion - the unauthorized taking of customer funds for personal use.
When the customers repeatedly asked Nicholas for account statements showing how their investment was being managed, Nicholas prepared and emailed a completely fabricated brokerage statement. This false document purported to show that his entity had opened an account at a FINRA member firm holding various equity securities and earning dividend income. In reality, neither Nicholas nor his entity had any account at that firm or owned any assets there.
Additionally, Nicholas failed to provide prior written notice to his member firm about his OBA involving the entity and falsely attested in a firm compliance certification that he had no OBAs. Nicholas also participated in a private securities transaction (the promissory note) without providing required notice or receiving permission from his firm.
Conversion of customer funds is among the most egregious violations in the securities industry. Creating false account statements compounds this misconduct by deceiving customers about the status of their investments and preventing them from taking timely action to protect their interests.
This case demonstrates the critical importance of investors receiving account statements directly from custodian firms rather than relying solely on statements provided by their advisor. Investors should independently verify their account holdings and be extremely cautious about investing in promissory notes or other securities issued by their advisor's entities.
