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Regulatory Sanctions

Broker Barred After ‘Falling Off the Wagon’ with Undisclosed Private Securities

July 24, 2017

by Howard Haykin


This case concerns a broker who, earlier in his career, was taken to arbitration by many of his customers. He recently appeared to have “fallen off the wagon” by selling a private securities transaction with marketing that seemed unethical and violative.


FINRA Office of Hearing Officers (OHO) issued a default judgment barring Tracy Turner from the industry and fining him $272K plus prejudgment interest on charges that he: (i) participated in undisclosed private securities transactions; (ii) made publicly available online an offering memorandum that included false and misleading statements; and, (iii) made statements that were not fair and balanced. Turner defaulted by failing to answer the FINRA complaint.


BACKGROUND.    Turner, a resident of San Marcos, CA, entered the industry in 1985. He was registered as a general securities representative, general securities principal, and operations professional with Colorado Financial Service Corporation from January 2011 until December 2014. Turner has not re-associated with another FINRA member firm.


Turner’s CRD records indicates 31 customer disputes – though none of recent vintage. Nineteen (19) ended in a settlement or an award, 10 were dismissed, denied, withdrawn, or closed with no action, and 2 are pending. Many of the cases involved suitability. The largest settlement amount was $1,250,000. That said, all cases date back to 2003 and prior.


FINRA FINDINGS.    From September 2013 to April 2014, Turner offered and sold interests in saltwater disposal well facilities ("SWDs"), with 12 investors purchasing over $4 million in SWD interests. Eight of the investors were customers of Colorado Financial. For his efforts, Turner received $270,000 in compensation. Turner never gave prior written notice to his employer for this private securities transaction (“PST”).


To market the sale of interests in the SWD, Turner created and made publicly available online a document he called an "Offering Memorandum." In the Offering Memorandum, Turner described an investment offering - a "20% direct working investment in a new state-of-the-art Saltwater Disposal Facility in an undisclosed location near Midland, Texas, for $3,000,000." He further touted a "25.4% cash-on-cash return," while describing the investment as "an outstanding opportunity for a 1031 exchange investor seeking a high level of recurring income from a non-leveraged investment.


Turner also posted a message online that accompanied the Offering Memorandum that essentially repeated some of the claims made in the Offering Memorandum.


FINRA deemed both the Offering Memorandum and the online message to be "communications" and "retail communications.” As such, their content had to be based on principles of fair dealing and good faith, had to be fair and balanced, and had to provide a sound basis for evaluating the facts in regard to any particular security.


Turner also allegedly violated FINRA rules that prohibit its members and their associated brokers from making false, exaggerated, unwarranted, promissory or misleading statements or claims in any communications with the public.


FINRA examiners in this case, as well as FINRA OHO officers, deemed the statements and predictions in the communications to be false and misleading. And since Colorado Financial had no apparent knowledge of the offering, there was no opportunity for an 'independent' review of the communications prior to their release.


This case was reported in FINRA Disciplinary Actions for July 2017.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2014040338401.