FINRA suspended San Diego's Jay Sheldon Potter, Jr. through June 16, 2014, and fined him $10,000 after Potter allegedly failed to disclose a customer's complaint against him and settled the matter confidentially so as to impede the customer's ability to communicate with FINRA or any other regulatory authority.
Although Potter did not admit or deny FINRA'S finding in reaching a settlement with the regulator, FINRA'S findings state that while he was President and CEO of Nexcore Capital in October of 2008, Potter sold 101,500 discounted shares of Envirepel Energy Inc. through Nexcore affiliate Fulcrum Enterprises, of which Potter was President.
Proceeds from the sales of these discounted shares totaled $126,875.
The investigation found that Potter neglected to inform the shares' purchasers that Fulcrum did not possess a written contractual right to Envirepel and that Fulcrum did not have certificated Envirepel shares.
Despite presenting his customers with a Stock Purchase Agreement ("SPA") that stated Fulcrum owned the Envirepel shares and would transfer them to the customers, investigators concluded that Potter did not ask Envirepel to reregister Fulcrum's purported shares in the names of the purchasers, did not inform Envirepel of their identities and did not disclose to the purchasers that he had not taken these actions.
After one of the discount shares purchasers communicated with Potter between March and May of 2009, culminating in a May 8, 2009 e-mail in which the customer demanded a $12,500 refund because Fulcrum had failed to deliver the promised Envirepel shares, FINRA sent Potter a letter requesting information relating to the allegations of failure to deliver stock.
Investigators determined that Potter failed to update his personnel Form U4 to reflect this complaint against him.
Potter responded by stating that Fulcrum was a "victim" of Envirepel's refusal "to honor its obligation to transfer the shares."
Envirepel, meanwhile, unequivocally denied that Fulcrum had ever been issued any shares.
In February 2010, multiple purchasers and Envirepel CEO Anthony Arand filed a shareholders derivative lawsuit against Potter, Fulcrum and Nexcore, alleging, amongst other charges, that Nexcore improperly sold Envirepel shares despite the fact that no Envirepel shares had been issued to Fulcrum.
In December 2010, the two sides signed a Settlement Agreement which required that "all plaintiffs and cross-defendants will agree to cease all communications with FINRA." In June 2011, a confidentiality agreement was executed.
This confidentiality agreement violated FINRA rules because it placed restrictions on certain persons that prevented them from communicating with FINRA staff and investigators.
Potter was previously suspended and fined $5,000 on September 30, 2009 for causing Nexcore Capital to operate in violation of the books and records and net capital provisions of the Exchange Act. The investigation concluded Potter caused Nexcore to engage in securities business while not maintaining required net capital.
FINRA requires its member firms, registered representatives and brokers to keep lines of communication open by maintaining accurate books and records, Form U4s and certifications,and providing timely and adequate responses to requests for information.
Furthermore, communication between complainants and FINRA is absolutely vital for FINRA'S ability to conduct a thorough investigation into allegations of misconduct.
By settling a complaint without reporting the existence of the complaint or its resolution and by restricting multiple parties' collective ability to communicate with FINRA, Potter was found to have engaged in misconduct deserving of an 18-month suspension.
If you have invested with Jay Sheldon Potter, Nexcore Capital, Fulcrum Enterprises or with any firm, broker or other financial professional who has failed to adequately address your complaint, or attempted to settle the matter with a requirement limiting your ability to communicate with regulatory authorities or law enforcement, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.