FINRA expelled Halcyon Cabot Partners, Ltd. and barred executives Michael Morris and Ronald Heineman for fraud, sales practice abuses and supervisory/anti-money laundering (AML) failures, including an illicit scheme to conceal private placement fee kickbacks.
According to FINRA's report, Morris, Heineman and already-barred broker Craig Josephberg agreed to hide a discount provided to a venture capital firm when that firm purchased a private placement in Cell Therapeutics Inc., which is a cancer drug development company.
The investigation states that Halcyon Cabot was not the buyer and did not perform any work, but instead returned most of its $1.75 million placement fee to the investor through "sham" consulting agreements, including a "bogus" placement fee agreement. Investigators concluded that this fraudulent kickback scheme covered up the fact that the drug company was selling its shares at a discount.
FINRA Chief of Enforcement Brad Bennett explained that in concealing the placement fee kickbacks, the investor deceived the market into thinking the discounted shares were instead being purchased at full offering price, though Bennett noted this fraudulent scheme was not the only time Halcyon Cabot failed to comply with AML procedures and similar supervisory and sales practices.
For instance, investigators found that Morris falsified Halcyon Cabot books and records to conceal certain illicit sales, such as those effected by Josephberg in states he was not registered. The report states Josephberg eluded supervision and churned customer accounts, effecting unauthorized trades.
The report also states that Halcyon Cabot charged seller commissions on certain transactions where Halcyon Cabot did not actually provide any services to sellers. FINRA found that through an agreement between the two firms, Halcyon Cabot enabled another FINRA-expelled firm, Felix Investments LLC, to secretly collect some of these sellers' commissions.
If you have invested with expelled firm Halcyon Cabot Partners, or with Michael Morris, Ronald Heinemann or Craig Josephberg, or with any broker or financial adviser whose fraudulent schemes, churning and unauthorized/excessive trading activity or other supervisory failures and ensuing misconduct have proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.
News Release: FINRA Expels Halcyon Cabot Partners and Bars CEO and CCO for Fraud, Sales Practice Abuses, and Widespread Supervisory and AML Failures (FINRA)