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For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, James S. Turo submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted.In the Matter of James S. Turo, Respondent (AWC 2010022672001, March 5, 2013).
Turo first became registered with a FINRA member firm in 2003; and the AWC alleges that during the relevant times in this matter, Turo was the Managing Director and Chief Compliance Officer of GT Securities, which is 100% owned by Growthink, Inc. (where Turo is the Chief Executive Officer and co-founder). The AWC asserts that he had no prior disciplinary history.
SIDE BAR: According to the "About Us" page for Growthink, the company offers, in part, the following guidance:
Growthink helps entrepreneurs become more successful. Since 1999, we have helped over 500,000 entrepreneurs to successfully start, grow and/or exit their companies.
Growthink accomplishes this through our suite of services and products that solve the key needs of entrepreneurs. These needs include: expertly identifying and pursuing new opportunities, developing business plans, raising capital, building marketing and growth strategies, and developing and executing on exit plans.
In 1999, at the height of the Internet bubble, Growthink co-founders and serial entrepreneurs Dave Lavinsky and Jay Turo graduated with their MBAs from UCLA's Anderson School of Management. At that time, Lavinsky and Turo identified an interesting opportunity; thousands of businesspeople wanted to launch Internet ventures, but they didn't know how to start, finance and build them. . .
Growthink's mission is to help all entrepreneurs succeed so they can create jobs, grow economies, offer customers better products and services, realize great personal satisfaction and wealth, and fund programs that make the world a better place. . .
In January 2008, Growthink commenced an offering of its securities to raise general working capital. During the relevant period from January 2008 to January 2010, Turo, on behalf of Growthink, allegedly offered and sold Growthink preferred shares to 46 investors for about $2,611,124.00. These securities were represented to be exempt from registration pursuant to Rule 506 of Regulation D which, among other provisions, requires compliance with Rule 502, which prohibits general solicitations.
SIDE BAR: According to the Securities And Exchange Commission online guidance concerning Rule 506 [Ed: emphasis added]:
Rule 506 of Regulation D
Rule 506 of Regulation D is considered a "safe harbor" for the private offering exemption of Section 4(2) of the Securities Act. Companies using the Rule 506 exemption can raise an unlimited amount of money. A company can be assured it is within the Section 4(2) exemption by satisfying the following standards:
The AWC alleges that during the relevant period, Turo conducted live webinars on strategic business planning, entrepreneurship, and private equity investing; however, included in these presentations was a general solicitation for investments in Growthink. Some of these webinars were open to the public, who were able to access Growthink's website and complete an online form that requested registrants to provide only their full name, email address and phone number. There did not seem to be an effort to ascertain whether a registrant would qualify as an "accredited investor" or satisfied the statutory definition of "sophisticated" - and many such participants apparently lacked any prior relationship with the issuer or Turo.
During the webinar, Turo's presentation purportedly included discussions and PowerPoint slides regarding "The Growthink Investment Vehicle" and the opportunities available to investors. After each webinar, the AWC alleges that Growthink generally followed-up by email to all webinar registrants(including those who did not attend the webinar) and provided a link to a recorded version of the webinar and the PowerPoint Presentation.
Given the various circumstances cited above, the AWC alleged that Turo had engaged in a general solicitation of investments in Growthink through live webinars and PowerPoint presentations, both of which contravened Rule 502 by constituting distributions to the general public; and, since the Growthink's transactions did not qualify for a Rule 506 exemption, the offers and sales by Turo involved unregistered and non-exempt securities in contravention of Section 5 of the Securities Act of 1933. The AWC alleged that such conduct resulted in violations by Turo of NASD Rule 2110 for conduct prior to December 15, 2008, and of FINRA Rule 2010 for conduct on or after that date.
In accordance with the terms of the AWC, FINRA imposed upon Turo a Censure and $20,000 fine.
Welcome to the brave, new world of Wall Street regulation - a sometime scary and often confusing place. This case offers a very timely and important lesson. There's no gimmes or Mulligans just because you're online. The Internet is not, in and of itself, a safe haven from regulatory and compliance problems. Similarly, just because you only intended to discuss generic issues during your webinar doesn't mean that you did not ramble and amble, and, voila!, wound up communicating information about a topic that, in retrospect, you probably should not have gone anywhere near.
On top of all those best laid plans of PC mice and men, you can't simply cut and paste a PowerPoint presentation into your webinar if you work in the securities biz. Yeah, I know, you got folks in-house who do all those wonderful things with PowerPoint and about all you know is to push "Forward" or "Back" on your handheld wireless presentation device. Unfortunately, your lack of familiarity with software just ain't gonna cut it with the SEC or FINRA. If your webinar will include a PowerPoint, make sure that you've reviewed it before air-time for compliance concerns; and you might also want to run it by some compliance officer just to make sure that a fresh set of eyes doesn't spot something that you may have missed. The way these things often devolve into a mess, you're looking to make sure that the colors are right, that the font is readable, and that the funny video plays as programmed - the compliance guy is worried about laws, rules, and regulations.