← Broker database 2023-04-03
Larry Norton Suspended 30 Days for Undisclosed Private Securities Transactions
According to FINRA, Larry Eugene Norton was fined $5,000 and suspended for 30 days for participating in private securities transactions without providing prior written notice to his member firm.
Norton personally invested approximately $138,000 in investment contracts offered and sold by a company that purported to be an invoice factoring company providing cash to companies in exchange for their accounts receivable. He made these investments by entering into separate "Funding Partner" agreements pursuant to which he provided capital funding to the company in exchange for promises that it would acquire accounts receivable solely for his account and generate 12 to 25 percent returns on his investments.
Norton did not make these investments through his firm, nor were the securities offered by his firm, and thus they were outside the regular course or scope of his employment. FINRA rules require registered representatives to provide prior written notice to their firm before participating in private securities transactions, even when investing their own money, so the firm can assess potential conflicts of interest and supervisory concerns.
On firm compliance questionnaires, Norton marked "N/A" in response to a question about private securities transactions, where the firm indicated "N/A" should be marked where one had not and did not intend to engage in such transactions. This response was inaccurate given his investments.
This case illustrates that the private securities transaction rule applies even when representatives are investing their own money rather than selling to customers. Firms need to know about these activities to properly supervise their representatives and identify potential conflicts. Investors should be aware that registered representatives who engage in undisclosed private investments may be taking risks that their firm would consider inappropriate.