Customers of former LPL Financial LLC (“LPL”) broker Kerry Hoffman (“Hoffman”) of Chicago, Illinois may have arbitration claims if they purchased unregistered GT Media Inc. on behalf of their clients between July 2015 and July 2018.
Hoffman was a registered representative and an investment advisory representative associated with LPL. GT Media hired Hoffman as an adviser in March 2015. Hoffman then recommended that GT Media hire his friend Thomas Conwell (“Conwell”), who had been previously enjoined and criminally convicted for stealing money from investors, to sell its stock.
As alleged in a complaint filed by the Securities and Exchange Commission (“SEC”), from July 2015 through July 2018, Conwell offered and sold approximately $2.5 million of GT Media stock to approximately 41 investors. The SEC further alleged that exchange for selling GT Media stock to investors, Conwell received $221,900 in commissions from the company. The SEC complaint is accessible below.
The SEC also alleged that throughout the offering, Conwell made numerous misrepresentations to investors about GT Media. Among other things, Conwell allegedly told investors that two Fortune 500 companies were seeking to acquire GT Media, that GT Media would soon conduct an initial public offering, and that he was not being compensated by GT Media but was merely a co-investor. The SEC alleges that in addition, between 2016 and 2017, Conwell misappropriated $161,500 from approximately 16 investors who he solicited to invest in GT Media stock and used the investors’ money to pay his personal expenses.
The SEC alleges that in soliciting his advisory clients to invest in GT Media, Hoffman failed to inform them of his significant conflicts of interest, including his receipt of warrants and commissions from GT Media and his loans to GT Media which were repaid with investor money.
Hoffman (CRD No. 1061740), formerly of LPL and most recently with Union Capital Company, and Conwell, who was barred by the SEC in 2006 for stealing money from investors, engaged in a scheme whereby they allegedly made false representations to investors to acquire $3.3 million through the sale of GT Media Inc. securities.
Selling away occurs when a broker or investment adviser sells an investment to a client that is not included in the client’s account or in the investment products that are offered by the firm. These private securities often include investments in private placements (as here), private non-traded REITs, privately-held companies, limited partnerships, real estate and promissory notes.
If a broker wants to complete a private securities transaction, he or she must provide the firm with written notice that details the transaction, and the transaction must be approved by the firm. If the transaction is not approved by the firm, the broker cannot participate in any way with the transaction. If the broker does not comply with the firm’s order, or does not attempt to gain approval, “selling away” has occurred. Selling away cases often involve both the actions of the broker and the supervisory practices of the firm. Often, selling away could have been prevented if the firm’s supervisors had paid attention to certain red flags that should have alerted them to the broker misconduct.
Among the many duties and responsibilities that brokers and brokerage firms owe to their clients are the duties to “conduct business with high standards of commercial honor” and “maintain just and equitable principles of trade” (FINRA Rule 2010). In addition, FINRA’s often discussed ‘suitability rule’ (FINRA Rule 2111) mandates, in part, that a broker and his or her employer must seek to ensure that the purchase of a recommended security is in keeping with the customer’s risk profile and stated investment objectives.
NASD Rule 3010 and FINRA Rule 3110 also require brokerage firms such as LPL to have a system in place to supervise the sales activities of their Registered Representatives. These industry rules require that each member ensure that transactions with customers are reviewed and in certain instances approved by a Supervisor/Principal of the member. Brokerage firms may be held liable by customers for failures to supervise that result in customer losses due to broker misconduct.
If you have invested with Thomas Conwell or Kerry Hoffman and have suffered losses, you may be able to recover your losses in FINRA arbitration. Investors may contact a lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or firstname.lastname@example.org for a no-cost, confidential consultation.