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Broker Suspended for Sharing Commissions with Unregistered Entity
by Howard Haykin
John Oldham agreed to a $5K fine and a 3-month suspension (in all capacities) to settle FINRA charges that he shared commissions from the sales of publicly registered non-traded REITs and business development companies (alternative investments) with an unregistered entity.
BACKGROUND. Oldham, a resident of Gold Canyon, AZ, has 13 years’ experience with 8 firms. He holds Series 7 (General Securities) and Series 6 (Investment Company Products/Variable Contracts) licenses. From May 2014 through September 2015, Oldham was associated with NPB Financial Group. He then worked for Center Street Securities from September 2015 until October 2016. Oldham is not currently registered or associated with a member firm.
FINRA FINDINGS. In August 2014, Oldham entered into an arrangement with an Investment Advisor to facilitate sales of publicly registered non-traded REITs and Business Development Companies (collectively, "alternative investments") to the IA’s customers. Under this arrangement, the IA agreed to refer some of its customers to Oldham so he could purchase alternative investments in accounts opened by them at NPB Financial. In return for these referrals, Oldham agreed to pay the IA a majority of the commissions he would receive from these transactions. The IA was not a registered broker-dealer and its representatives were not associated with a FINRA member.
From August 2014 through July 2015, Oldham facilitated the sales of approximately 99 alternative investments totaling more than $4.8 million to 50 customers referred to him by the IA. Oldham shared commissions with the IA amounting to about $240,000 for these transactions.
In connection with these transactions, both Oldham and the IA-referred customers executed subscription agreements. By doing so, Oldham expressly warranted that he was the financial advisor who had advised each customer of all aspects of liquidity and marketability of the investments. In some instances, this representation was inaccurate because Oldham had not communicated with the customer who had executed the subscription agreement. This caused his member firm’s books and records to be inaccurate.
- NASD Rule 2420 prohibited member firms and their associated persons from sharing commissions derived from a securities transaction with anyone who is not a registered entity or an associated person of a registered entity.
- FINRA Rule 4511 requires FINRA members to make and preserve books and records as required under theFINRA rules, the Exchange Act and the applicable Exchange Act Rules.
This case was reported in FINRA Disciplinary Actions for June 2017.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2015046203101.