[ by Howard Haykin ]

FINRA on Monday filed a Temporary Cease-and-Desist Order (TCDO) to halt further fraudulent sales activities by Michigan-based WR Rice Financial Services and its owner Joel Wilson, as well as the conversion of investors' funds or assets.  In its filed complaints, FINRA charges WR Rice and Wilson with  fraud in sales of limited partnership interests in entities affiliated with the Diversified Group and American Realty Funds Corporation.  Wilson has ownership interests and control in both of the latter mentioned companies. 

Profiles of Respondents. W R Rice Financial Services, Inc., a FINRA member since October 1994, was acquired by Wilson and a former partner in November 2010.  Wilson currently owns at least 95% of the firm.  WR Rice is based in Bay City, MI, has 5 remote branch offices, employs 18 registered persons and one non-registered person.  The company conducts a general retail securities business.  From Q2 of 2011 through Q3 of 2012 - some 15 months - the firm generated a significant portion of its total revenue from sales of interests in limited partnerships.

Joel Wilson first acquired his Series 6 and 63 licenses in May 2007.  6 and 63 licenses. He subsequently acquired Series 7, 24, 53, and 65 licenses.  In terms of employment, Wilson was associated at various times with 2 broker-dealers from 4/27/07 until 1/15/10.   Later in 2010, between 8/1 and 11/26, Wilson was associated with Wilson and Kazee Diversified Financial Group LLC, an entity that applied, and ultimately withdrew its application, for FINRA membership. 

On 11/29/10, WR Rice filed Form W4 for Wilson, commencing his association with that firm ;  Wilson maintained the following licenses at WR Rice:

• Direct Participation Principal ("DPP"),
• General Securities Principal ("GSP"),
• General Securities Representative ("GSR"),
• Municipal Securities Principal ("MSP").
• One year later, he obtained his Options Professional ("OP") license.

Wilson served as WR Rice's President and Executive Principal (November 2010), as CCO (March 2011), and as CEO (May 2012), and held those positions until he relinquished them on or about 10/15/12.  That same day, WR Rice terminated all other registrations Wilson held with the firm.  Currently, Wilson is associated with WR Rice and holds a Series 7 General Securities Rep.

FINRA Findings and Allegations.  WR Rice, Wilson and other RRs allegedly sold more than $4.5 million in limited partnership interests ("LPs") to about 100 investors - predominantly low-to-moderate-income households.  In their presentations to investors, the individuals allegedly misrepresented or omitted material facts.  FINRA charges Wilson and WR Rice with promising investors that:

• proceeds would be invested in land contracts on residential real estate in Michigan.
• that the investment would pay out an interest rate of 9.9%.
• Investors' funds, instead, were used to make unsecured loans to companies Wilson owned or controlled. 

WR Rice and Wilson allegedly failed to disclose to investors that Wilson extended the improper loans due to an inability to pay them as they became due.

Wilson further allegedly provided fabricated documents to FINRA related to the LP offerings, then he allegedly failed to provide full and complete testimony during FINRA's investigation of him and his firm after he was confronted with the falsified documents.

WR Rice, Wilson and other registered representatives at the firm sold more than $4.5 million in limited partnership interests to approximately 100 investors from predominantly low-to-moderate-income households, while misrepresenting or omitting material facts. FINRA charges that Wilson and WR Rice raised funds promising that the proceeds would be invested in land contracts on residential real estate in Michigan, paying an interest rate of 9.9 percent, when in fact, investors' funds were used to make unsecured loans to companies Wilson owned or controlled. In addition, FINRA alleges that WR Rice and Wilson failed to disclose to investors that Wilson extended the improper loans due to an inability to pay them as they became due.

Wilson is further charged with providing fabricated documents to FINRA related to the limited partnership offerings, and with failing to provide full and complete testimony during FINRA's investigation of him and his firm after he was confronted with the falsified documents.

FINRA Disciplinary Hearing Process. Under FINRA rules, individuals and firms named in a complaint can file a response and request a hearing before a FINRA disciplinary panel.  Possible sanctions include a fine, an order to pay restitution, censure, suspension or bar from the securities industry.  The issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA, in which findings as to the allegations in the complaint have not been made, and does not represent a decision as to any of the allegations contained in the complaint.

Alleged Violations. Both WR Rice and/or Wilson are charged with the following violations:

• WR Rice & Wilson.  Fraudulent Misrepresentations and Omissions, resulting in Willful Violations of Section 10(b) of the Exchange Act and Rule 10b-5 and Violations of FINRA Rules 2020 and 2010.
• Wilson, only.   Production of Falsified Documents to FINRA, resulting in Violations of FINRA Rules 8210 and 2010.
• Wilson, only.   Failure to Provide Full and Complete Investigative Testimony, resulting in Violations of FINRA Rules 8210 and 2010.

For further details, go to:   [FINRA News Release, 11/5/12], [FINRA Disciplinary Proceeding #.2012030531101], and    [FINRA Cease and Desist Order].