Hedge Fund Capital Partners, LLC of New York, NY, and Howard Jahre, a Registered Principal, were booted from the industry after the firm and Jahre provided false and misleading information to FINRA, willfully filed a misleading Form U4 and employed a statutorily disqualified person - among other things. 

Violated Soft Dollar Rules on Rent.  The firm rented office space to hedge fund clients, allowing some advisor tenants to pay rent through trading commissions - i.e., soft dollars - rather than cash, contrary to the safe harbor provisions of SEC regulations.  Jahre understood which expenses could be paid for with soft dollars - like research - and which could be paid with soft dollars only if the expenses were disclosed to the hedge fund’s investors in the fund’s offering documents - such as rent and general operating expenses.  With this knowledge, Jahre had responsibility for ensuring his firm's compliance with soft-dollar rules.  The firm and Jahre allegedly reviewed the hedge fund’s offering memorandum and knew or should have known that it wasn't appropriate for its investment manager to pay rent with soft dollars.  Nevertheless, Jahre personally approved and signed the office space rental agreement. 

Improper Trading Strategy.   Jahre also personally sent emails to potential investors regarding an “arbitrage strategy” in the CMO market to be pursued by a startup fund that contained predictions or projections of performance;  yet, none of the emails provided a sound basis for evaluating the facts about the proposed investment and instead, the investors targeted in the emails would have to sign a nondisclosure agreement (NDA) before the strategy would be disclosed. 

FINRA further determined that Jahre’s emails were:  (i) exaggerated, unwarranted and misleading;  (ii) not fair and balanced;   (iii) did not provide a sound basis for evaluating the facts regarding the investment; and, (iv) did nothing to ensure that applicable risks were included in hedge fund marketing materials used.  It was also noted that the firm failed to maintain copies of institutional sales materials for 3 years as required.

Registration Issues.    The firm allegedly allowed individuals to market hedge funds through the firm to institutional investors without being duly registered.  Jahre was responsible for ensuring proper registration among the firm's associated persons.  The firm, acting through Jahre, further hired an individual who engaged in activities on the firm’s behalf when he was not properly registered, and they allowed him to work for the firm after Jahre became aware that the individual was statutorily disqualified.  In order to allegedly cover this up, the firm and Jahre willfully filed false and misleading Forms U4 for the statutorily disqualified individual.  Jahre also allowed another individual to park her license at the firm solely as an accommodation to her relative even though the firm did not expect her to perform any services that required registration. 

Control Over Employee Email.   The firm didn't require all of its RR's and other employees to use the firm’s email system and failed to preserve all emails.  While Jahre or his designated supervisor was supposed to review these areas, no one performed the review.  The firm also failed to have filters in place to block connections to IM services - as it stated it would in its WSPs.  Neither Jahre nor others retained or reviewed IMs. 

What, No Annual Compliance Meeting, Too?  Finally, FINRA found that the firm and Jahre failed to supervise activities of RR's and associated persons of the firm, and failed to hold a required live annual compliance meeting.  

The coup de grace, was that both provided false responses to requests for information and testimony.  The firm and Jahre have appealed this decision to the NAC and the sanctions are not in effect pending review.  This is FINRA Case #2006004122402.   [Disciplinary Actions for May]