← Broker database 2022-12-28
Moloney Securities Ordered to Pay $268,083 in Restitution for Failing to Disclose Material Information
According to FINRA, Moloney Securities Co., Inc. was censured and ordered to pay $268,082.64, plus interest, in partial restitution to customers. A fine was not imposed after FINRA considered the firm's revenues, financial resources, and agreement to pay partial restitution with interest to affected customers.
The firm negligently omitted material facts by failing to tell investors in an offering related to an alternative asset management firm that the issuer 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, which were finalized and accepted by the alternative asset management firm, totaled $3,230,384, and the firm received a total of $268,082 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 another example from the pattern of multiple firms selling interests in offerings related to the same problematic alternative asset management firm without disclosing critical information to investors. The firm's decision to continue selling limited partnership interests after receiving notification of delays and the intention to complete a forensic audit demonstrates a failure to appreciate the significance of this information and its materiality to investors.
Investors should understand that when an issuer delays filing audited financial statements and announces a forensic audit, these are serious red flags indicating potential accounting irregularities, fraud, or other financial problems. The subsequent SEC enforcement action and criminal charges validate the significance of these warning signs. Any broker or firm that continues to sell securities without disclosing such material information is failing in its duty to investors. Always ask probing questions about the financial status and regulatory compliance of any private placement investment before committing your money.