According to FINRA, Ronald Coy Bailey Jr. was assessed a deferred fine of $15,000 and suspended for 12 months for participating in an undisclosed private securities transaction, engaging in undisclosed outside business activities, and distributing misleading communications about investments.
The findings revealed multiple serious violations. Bailey entered into an investment marketing agreement with a limited liability company to sell and market LLC membership interests in a seafood processing company for compensation of up to a 0.5 percent membership interest in the LLC. In connection with these activities, Bailey distributed the LLC's financial projections and marketing materials to potential investors and arranged investor meetings with the seafood processing company's management. Bailey solicited a customer at his firm to invest $588,000 in an LLC membership interest and was given a 0.5 percent membership interest as compensation. Bailey did not notify or receive prior written approval from his firm to participate in this private securities transaction. Additionally, Bailey attested during an annual compliance interview that he had not solicited any persons to make investments other than in products offered by or through the firm, which was false.
Bailey also engaged in outside business activities without providing prior written notice or receiving approval from his firm. He introduced the LLC's management to contacts who could provide transportation services. Further, Bailey engaged in undisclosed and unapproved OBAs with a human resource consulting and payroll administration company. Bailey and two partners registered the company's name and marketed it to the public. Bailey submitted an OBA approval request to the firm to own and operate the company, however, the firm denied the request. Despite this denial, Bailey continued his business activities with the company.
Additionally, in the course of soliciting investors for the seafood processing company, Bailey emailed financial projections to a potential investor that did not clearly disclose the applicable risks of the investment and were promissory and misleading. Bailey did not submit any communications regarding investments in the seafood processing company to the firm for internal review prior to distribution. Bailey's communications did not provide the key assumptions underlying the profit projections, did not identify the key limitations, impediments and restrictions that could impede achievement of the projections, and did not disclose the general risks associated with private placements—that they are speculative in nature, illiquid, and carry the possibility of entire loss of the investment. As a result, the communications did not provide investors with a sound basis to evaluate all relevant facts with respect to the potential investment.
This case involves multiple serious violations that, taken together, demonstrate a pattern of disregard for fundamental regulatory requirements. The private securities transaction violation is particularly serious because Bailey solicited a substantial investment ($588,000) from his firm customer and received compensation (a 0.5 percent membership interest) without any firm oversight or approval. The requirements to disclose and obtain approval for private securities transactions exist to ensure that such transactions are supervised by the firm, that investors receive appropriate protections, and that conflicts of interest are properly managed.
Bailey's conduct became even more egregious when he falsely attested on an annual compliance questionnaire that he had not solicited any investments outside of firm products. This false attestation demonstrates not just a failure to disclose but active concealment of his prohibited activities. When Bailey's firm denied his request to engage in outside business activities with the consulting and payroll company, he continued those activities anyway, showing a willful disregard for firm determinations and regulatory requirements.
The misleading communications about the seafood processing investment compound the violations by showing that Bailey was not just engaging in undisclosed activities but was promoting investments without providing balanced disclosures of risks. The failure to disclose that the investments were speculative, illiquid, and could result in total loss is particularly troubling when combined with promissory projections that could lead investors to underestimate risks.
The 12-month suspension and $15,000 fine appropriately reflect the serious and multifaceted nature of Bailey's misconduct. The combination of undisclosed securities transactions, false statements to the firm, continuing prohibited activities after denial, and misleading investor communications demonstrates unsuitability for a position of trust in the securities industry.
