FINRA fines two firms $115,000 for disclosure related failures

The Financial Industry Regulatory Authority has fined Brad Brooks, former chief compliance officer for Titan Securities for misrepresentations and omissions in connection with two municipal securities related private placements, as well as Rockefeller Financial for its failure to disclose certain mark-ups and mark-downs in municipal securities transactions.

FINRA handed down the penalties in two separate enforcement actions. Brooks has been charged $15,000, and given a three month suspension from associating with any FINRA member firm for making negligent material misrepresentations and omissions to investors involved in purchasing limited partnership interests in two private placements. Without admitting or denying the findings, Brooks accepted the terms and consented to the findings by FINRA.

Rockefeller Financial has been fined $100,000, and received a censure for failing to disclose mark-ups and mark-downs on 793 retail customer confirmations, in addition to failing to disclose mark-ups and mark-downs for another 344 corporate or agency debt securities transactions, violating MSRB Rule G-15 on customer confirmations, and FINRA Rules 2232 and 2010.

Rockefeller also failed to establish, maintain, and enforce a written supervisory system, violating MSRB Rule G-27 on written supervisory procedures and FINRA Rules 3110 and 2010. Without admitting or denying the findings, Rockefeller accepted and consented to the findings.

Brooks and his partner at Titan, who are both no longer registered with FINRA, were responsible for managing two limited partnerships known as Hall Arts and Bishop’s Lodge on behalf of investors, or limited partners and sold securities as private placements to draw in more investors. 

During July 2016 and August 2019, Titan, with Brooks as its registered representative, sold $27 million of limited partnership interests in Hall Arts to more than 350 investors. It also sold, between January 2017 and December 2018, $19 million in limited partnership interests to Bishop’s Lodge to more than 350 investors.

“In early 2017, Bishop’s Lodge needed capital to pay expenses, but the amount Bishop’s Lodge had raised from investors through its offering was not sufficient to cover the expenses that were due,” FINRA said. 

Brook’s partner then transferred $4.3 million from the proceeds Hall Arts raised to pay for Bishop Lodge’s expenses. FINRA found that Brooks should have taken reasonable care to make himself aware of the transfer, and when he did become aware of it in March 2018, he initiated an independent review, restricted access to the bank accounts of the partnerships and had the funds returned.

But Brooks failed to inform investors of Hall Arts that its funds had been transferred out and the transfers were not a permissible use of investor proceeds.

Brooks also negligently allowed the transfers issued by Bishop’s Lodge to be included in two PPMs in 2017 and 2018 and represented as “capital raised by the partnership,” FINRA said, resulting in the amounts raised to be overstated.

While that was happening in 2017, Brook’s partner used an additional $224,000 of investor proceeds from both Hall Arts and Bishop’s Lodge to pay certain expenses of another unregulated entity, and were later returned, but they were not picked up by Brooks, making the PPM representations about the use of proceeds inaccurate and materially misleading.

Titan Securities is no longer in business.

Rockefeller Financial’s failure, which it neither confirmed nor denied in its settlement, to disclose certain mark-ups and mark-downs occurred between June 2020 and August 2021.

“The firm failed to include any information related to mark-ups and mark-downs for most of the affected retail customer confirmations,” FINRA said. “In some instances, however, the firm included the dollar amount of the mark-up or mark-down as a percentage of the prevailing market price.”

The failure arose from a coding issue in connection with orders placed over the phone with Rockefeller’s clearing firm. 

The firm did not wish to comment on the record for the purpose of this story.

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