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Regulatory Sanctions

Broker Barred After Raising Funds for His Undisclosed Outside Business

November 16, 2017

by Howard Haykin


It’s not uncommon these days to come across a FINRA case involving a broker who set up a business and then solicited customers and non-customers to invest in that business. Problem is, when caught, the broker usually is charged with a host of infractions, including violations of the FINRA rules on Private Securities Transactions and Outside Business Activities.  [See Frozen Custard Maker FINRA’s Rules.] 


Adam Veron agreed to be barred from the industry to settle FINRA charges that he participated in private securities transactions without first providing written notice to his member firm or obtaining its approval prior to participating.  He apparently participated undisclosed outside business activities, as well.


BACKGROUND.    Veron, a resident of Lake Charles, LA, had 14 years’ experience with 5 firms. He held Series 6 and Series 7 licenses. Veron was associated with Questar Capital from September 2013 to February 2017. The firm U5’d him on 2/9/17 for having “failed to report an outside business activity on a timely basis in violation of firm policies and procedures for the broker-dealer.”


FINRA FINDINGS.    From July 2015 to December 2016, while registered with Questar, Veron participated in private securities transactions (“PSTs”) without first providing notice to his employer member firm and in violation of the Firm's WSPs. HERE ARE THE DETAILS.


In July 2015, Veron formed Contract Funding and Corporate Management, LLC ("CFCM") and served as its President. CFCM provides a line of credit to “Company A”, which uses the funds to fulfill its federal procurement contracts and, in turn, passes on a portion of its profits to CFCM. Shortly after forming CFCM. Veron began selling shares in CFCM, including $1.74 million worth of shares to 9 Questar customers and another $50,000 worth of shares to a non-customer.


Veron’s role in fund-raising and operating the business:

  • solicited these investments in CFCM;
  • hired legal counsel to draft the Subscription Agreement and Private Offering Memorandum (“Offering Documents”);
  • accepted investments by check and deposited those checks into a bank account he controlled;
  • provided the investors with the Offering Documents;
  • distributed profits from CFCM;
  • managed CFCM's relationship with Company A; and,
  • decided who could invest in CFCM and how much they could invest.


While Questar generally permitted its registered reps to engage in PSTs – subject to the firm’s prior approval – the firm prohibited its registered reps from engaging in a PST that involved raising funds for the registered rep’s own private company. Veron never provided written notice to, or obtained Questar's approval for, the nearly $1.8 million worth of investments from July 2015 to December 2016. Also, in 2015 and 2016, in response to the Firm's annual compliance attestations, Veron provided false answers regarding his PSTs and outside business activities (“OBAs”).


FINANCIALISH TAKE AWAYS.    FINRA nabbed Veron for violating FINRA Rule 3280 (PSTs). But he also was cited for violating FINRA Rule 3270 (OBAs). Questar’s WSPs, and for lying on annual compliance questionnaires (“ACQs”) – all over a 1-1/2 year period. FINRA had little choice but to ban Veron from the industry.


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

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2017053237601.