According to FINRA, Michael Murray Knittel was assessed a deferred fine of $10,000 and suspended for four months on January 28, 2022, for participating in a private securities transaction without providing required notice to his member firm.

Knittel recommended that investors invest $245,000 in a promissory note issued by a limited liability company to fund renovation of a residential property and pay legal fees associated with renegotiating an existing lien. Under the promissory note terms, investors would receive repayment of principal and a share of profits upon the property's sale.

Knittel introduced the investors to an owner of the company and provided them with information and documents about the investment, including a draft subscription agreement. After the investors invested, Knittel received $10,000 from the company as compensation for his role in the transaction. He failed to provide prior written notice to his firm or receive approval before participating in this transaction.

Later, the investors expressed complaints to Knittel about the company and their investments and commenced a civil action that was disclosed on an amended Form U4 filed by Knittel's firm. Knittel then sent the investors the $10,000 he had received from the company.

Private securities transactions - often called "selling away" - occur when registered representatives engage in securities transactions outside their firm's supervision. FINRA rules require representatives to provide prior written notice to their firms before participating in private securities transactions. This requirement enables firms to supervise these activities, evaluate whether they are appropriate, and protect investors from unsuitable investments or fraudulent schemes.

The $245,000 promissory note secured by a residential property renovation project carried significant risks that may not have been apparent to investors. Real estate development projects can encounter numerous problems including cost overruns, delays, market downturns, and contractor issues. Promissory notes secured by such projects may not be repaid if the project fails.

Knittel's receipt of $10,000 compensation from the company created a significant conflict of interest. He had financial incentive to recommend the investment regardless of whether it was suitable for the investors. When transactions occur outside firm supervision, firms cannot evaluate these conflicts or determine whether recommendations are appropriate.

For investors, this case illustrates the risks of investing in securities offered by your financial advisor outside their registered firm. Such "selling away" transactions lack proper supervision and often involve high-risk investments. Be extremely cautious about promissory notes or private placements recommended by your advisor, and verify that any investments are offered through their registered firm.