FINRA fined La Vista-based broker-dealer Securities America $250,000 for failing to conduct adequate due diligence and former Securities America broker Stuart Horowitz for recommending and engaging in unsuitable trading of preferred notes in an unregistered real estate limited partnership, which began making late payments to note holders before stopping payments altogether.
FINRA AWC #2013036692002 (Securities America)
FINRA AWC #2013036692001 (Stuart Horowitz)
According to the findings, Securities America and broker Horowitz unsuitably sold two private placement investments in an unregistered limited partnership real estate development security known as CSMIF without first conducting adequate due diligence and in contravention of the firm's written supervisory procedures. Investigators say Horowitz specifically ignored "substantial" red flags while reaping over $200,000 in net commissions as the fund ran into trouble with capital contributions and interest to the preferred notes, first making late payments before the fund stopped making payments to customers altogether.
The Horowitz AWC states that when Horowitz was associated with NFP Securities, his prior firm, he began selling interests in CSMIF, not as Preferred Notes, but as secured but subordinated notes. When CSMIF sought additional capital shortly thereafter, it offered the opportunity for its partners to convert their investments to Preferred Notes. NFP Securities apparently decided not to allow its representatives to sell these Preferred Notes because NFP was concerned about CSMIF's ability to generate income through the new vehicles.
Horowitz joined Securities America around this time, where he purportedly requested a "quick approval process" for the Preferred Notes, calling his request "urgent" because there may only be a "2 week window" to sell the Preferred Notes, even though the offering documents did not specify a deadline.
Investigators say that Securities America approved his request before that "2 week window" expired, and that Horowitz e-mailed all of his customers recommending conversion, "after a very thorough analysis of the CSMIF Preferred Note offering and conversion option." However, the report indicates no such "very thorough analysis" had occurred.
According to his BrokerCheck report, the CSMIF disciplinary action is Horowitz's 38th FINRA disclosure.
For Securities America, the FINRA discipline is reminiscent of its multiple failures to detect the Medical Captial Ponzi Scheme in 2008, despite possessing private placement memoranda and third-party due diligence materials signaling the existence of the scheme.
If you have invested with Securities America, Stuart Horowitz or with any broker or financial adviser whose unsuitable trading or lack of adequate due diligence and supervisory failures concerning unregistered or deficiently researched securities has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.