1. From September 2009 through March 2010, Respondents MSC - BD, LLC and Paul J. McIntyre ("MSC" and "McIntyre," respectively, or "Respondents'') misrepresented and omitted material facts in the offering documentation for the Hurricane Bay Marina private offering, which was sold to eleven investors through MSC and four other broker-dealers. During that time, McIntyre was the CEO and Chief Compliance Officer of MSC. MSC and McIntyre created the offering to recoup losses by investors from a prior failed real estate offering. This information was not conveyed to new investors in the Hurricane Bay Marina private offering. By engaging in the foregoing conduct, MSC and McIntyre willfully violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), Rule 10b-5 thereunder, and FINRA Rules 2010 and 2020.2. In addition, McIntyre, in his role as manager of the Hurricane Bay Marina offering, misused investor funds and violated the terms of the offering document by providing a full refund to one investor but not to others. McIntyre's conduct violated FINRA Rule 2010.
(1) Enforcement failed to prove that, in light of the extensive disclosures in the PPM, as well as the structure of the Second Offering, a disclosure of Respondents' involvement in the marketing and sale of the First Offering would have been material to reasonable Second Offering investors, or that the failure to make that disclosure caused the PPM to be misleading.(2) In light of the PPM's disclosures regarding PJM's service as trustee and the PPM's disclosures of numerous other financial benefits to PJM from the Second Offering, Enforcement failed to prove that the fact that PJM would be compensated by the Company for his trustee services which were for the benefit of the Company, would have been material to reasonable Second Offering investors, or that the failure to make that disclosure caused the PPM to be misleading.(3) The weight of the evidence indicated that the main purpose of the Second Offering was to raise funds to purchase the first mortgage and complete the construction of the marina, as stated in the PPM, and that the pursuit of litigation to enforce the guarantees, which were assets of the Company, was only a secondary goal. Further, because the First Offering investors received only subordinated interests in the Company, the Second Offering investors would have been the primary beneficiaries ofany recoveries in the litigation. Under these circumstances, Enforcement did not prove that Respondents failed to disclose the main purpose of the Second Offering, or that they misrepresented or omitted any material facts in that regard.(4) The pro forma financial statements in the PPM disclosed anticipated legal costs to the Company of$300,000, and Enforcement did not allege or prove that this estimate was unreasonable. And while the PPM did not break out the anticipated costs of the litigation against the guarantors, Enforcement cited no authority requiring such a break-out, and it failed to demonstrate that such a break-out would have been material to reasonable investors in the Second Offering or that the failure to include such a break-out caused the PPM to be misleading.(5) Insofar as any of the omissions alleged in the Complaint could be considered material, Enforcement failed to prove that Respondents acted with scienter or were negligent in not making the disclosures. The Panel notes that PJM circulated numerous drafts of the PPM for comments and proposed revisions to: (a) three attorneys, including GC, an experienced, independent securities attorney; (b) investors in the First Offering; (c) broker-dealers that PJM hoped would market the Second Offering; and (d) JL, who prepared an independent due diligence report on the Second Offering. PJM received numerous comments and suggested revisions to the PPM, particularly from GC, and adopted the material ones. Enforcement otTered no evidence that any of the reviewers suggested that PJM should add any of the disclosures that Enforcement contends were improperly omitted from the PPM. The Panel concludes that PJM acted in good faith in promulgating the PPM without the disclosures Enforcement cited and that, insofar as any material facts were omitted, the omissions were not attributable to intentional, reckless, or negligent conduct by Respondents.(6) Finally, Enforcement failed to prove that PJM misused investor funds by returning one investor's entire investment in the Second Offering. PJM had authority under the PPM to reject proposed investments in the Second Offering on suitability grounds. Accordingly, his return of$20,000 of the investor's proposed investment on that basis was not improper. PJM testified credibly that he returned the remaining $5,000 balance in full in August 2010 rather than 45% of the balance because the administrative and accounting costs of retaining 55% of that amount ($2,750) were prohibitive. The Panel finds that he had authority to make such a determination under the terms of the PPM. Accordingly, all charges in the Complaint will be dismissed.