← Broker database 2022-12-29
Center Street Securities Fined $70,000 and Ordered to Pay $89,653 in Restitution for Failing to Disclose Material Information
According to FINRA, Center Street Securities, Inc. was censured, fined $70,000, and ordered to pay $89,652.50, plus interest, in partial restitution to customers.
The firm negligently failed to tell investors in offerings related to an alternative asset management firm that the issuers failed to timely make required filings with the SEC, including filing audited financial statements. While the firm received a letter from the alternative asset management firm notifying it of delays and its stated intention to complete a forensic audit, the firm sold limited partnership interests after the date of the letter. The principal value of those sales totaled $1,206,000, and the firm received a total of $98,727.50 in commissions from the sales. However, in connection with these sales, firm representatives did not inform the customers that the issuers had not timely filed their audited financial statements with the SEC or the reasons for the delay. The delay in filing audited financial statements was material information that should have been disclosed.
Subsequently, the SEC filed a complaint against the alternative asset management firm and other defendants alleging securities fraud in violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5. The U.S. Department of Justice also brought criminal charges against the alternative asset management firm's founder and CEO and two other executives, charging securities fraud, mail fraud, and wire fraud.
This case is part of a pattern involving multiple firms that sold interests in offerings related to the same alternative asset management firm without disclosing material information about delayed financial statement filings. The fact that a forensic audit was being conducted should have been a major red flag to both the firm and its customers.
Investors should be extremely cautious when considering private placements and should always inquire about the current status of required SEC filings. Delays in filing audited financial statements, particularly when coupled with a forensic audit, often indicate serious problems with the issuer's financial condition or accounting practices. Any investment offering that involves delayed or missing financial statements should be approached with extreme caution, and investors should consider waiting until complete, audited financial statements are available before making an investment decision.