June 18, 2019
At first blush it looks like a fairly common customer complaint. You got an irate public customer naming six respondents in an effort to recover six figures in alleged damages. Just going by the FINRA Arbitration Decision, you're not all that worked up about the she-says-they-say aspect of the dispute, and, hey, who the hell really knows, right? Then you start digging, and, wow, it doesn't look like the customer was blowin' smoke! After a while, you begin to wonder if Wall Street is simply a cesspool. When they get a bad actor in this biz, does anyone give a crap? What's the point of all those regulators on Wall Street? In the end, you don't come away with a good feeling about your investments and the reputation of an industry.
Case In Point
In a FINRA Arbitration Statement of Claim filed in October 2017, public customer Claimant Meda asserted violation of
the Securities and Exchange Act of 1934; violation of the Michigan Uniform Securities
Act; negligent supervision; breach of fiduciary duty; and misrepresentation, fraud, silent
fraud, and fraud in the inducement. Claimant Meda alleged that Respondent Romer was a registered representative of Respondent CoreCap Investments and had solicited
Claimant to invest in Respondent CoreCap Solutions and Respondent P & R Capital LLC. Further, Claimant alleged that Romer misappropriated her funds for his personal use. During the relevant times, Claimant asserts that Respondent Maurer was Romer's assistant, and that Respondent Pett supervised Romer. Claimant sought $250,000 in compensatory damages plus consequential damages, punitive damages, interest, costs, and fees. In the Matter of the Arbitration Between Grace Meda, Claimant, v. CoreCap Investments, Inc., Raymond Max Pett, Holly Marie Maurer, Ernest Julius Romer, CoreCap Solutions, LLC, and P & R Capital LLC (FINRA Arbitration Decision 17-02794 / June 17, 2019) http://www.finra.org/sites/default/files/aao_documents/17-02794.pdf
Respondent CoreCap Investments, Respondent Pett, and Respondent Maurer generally denied the allegations. CoreCap Investments filed a Cross-Claim against Romer asserting in part that his allegedly intentional acts of theft made him liable for indemnification. The expungement of this matter from Respondent Pett's and Respondent Maurer's Central Registration Depository record ("CRD") was requested.
Respondents Romer, Corecap Solution, and P&R Capital LLC,did not file an Answer or execute a Submission Agreement. The FINRA Panel of Arbitrators found that CoreCap Solutions and P&R are not FINRA member firms or associated person and had not voluntarily submitted to arbitration; and, accordingly, the Panel made no determination as against them pertaining to Claimants claims.
In August 2018 Claimant settled and withdrew her claims with prejudice against Respondents CoreCap Investments, Pett, and Maurer; and against Respondent Romer without prejudice. Respondents Pett and Maurer did not contribute to the settlement. In January 2019, CoreCap Investments withdrew its Cross-Claim against Romer without prejudice.
The FINRA Arbitration Panel conducted an expungement hearing on Pett's and Maurer's petition. Claimant Meda took no position on the requested relief and was not involved. Respondents CoreCap Investments, Romer, CoreCap Solutions,and P & R did not participate in the hearing.
The Panel made a FINRA Rule 2080 finding that Respondent Pett and Respondent Maurer were not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds. The Panel offered the following rationale:
Bill Singer's Comment
The Panel received information regarding Romer's criminal activity. This activity
was concealed from Pett and Maurer. CoreCap Investments, their supervisors
(including Pett), and Maurer could not have discovered this activity through the
appropriate compliance reviews because it was being conducted outside of the
firm. There was no evidence that these individuals were involved. A criminal investigation was conducted that resulted in Romer's incarceration for his
actions. Neither Pett nor Maurer were implicated in Romer's illegal activity.
Online FINRA BrokerCheck records as of June 18, 2019, disclose that Romer was first registered in 1993, and had been registered with Corecap Investments, Inc. from October 2012 to January 2017. What does a quarter-of-a-century Wall Street career look like? FINRA's BrokerCheck offers the following summary of the prodigious number of disclosure events involving Romer:
Regulatory Event: 1 Pending; 6 Final
Criminal: 9 Final
Civil Event: 1 Pending
Customer Dispute: 1 Pending, 22 Final
Investigation: 2 Pending
Termination: 4 Final
Financial: 2 Final
Judgment/Lien: 3 Pending
Under the heading "Regulatory - Final," it is indicated that FINRA imposed fines and suspensions on Romer in 2013, 2011, and 2019 -- and even a Bar in 2017. Then, in 2017, the State of Michigan imposed a Cease-and-Desist and a $1 million fine on Romer, and separately revoked his securities agent registration and imposed a $500,000 fine. Not to be outdone by their regulatory counter-parts, the SEC also gets a shot in on Romer. In United States Securities and Exchange Commission, Plaintiff, v. Erneset J. Romer, III, Defendant (Complaint, United States District Court for the Eastern District of Michigan / September 18, 2018) asserts under the heading "Summary of the Action" that:
1. The SEC brings this civil law enforcement action to address Defendant
Ernest J. Romer, III's ("Romer") multi-million-dollar securities fraud. From approximately
2014 through 2016, Romer defrauded at least 30 of his retail brokerage customers out of
approximately $2.7 million. During that time period, Romer worked as a registered
representative associated with CoreCap Investments, Inc., a registered broker-dealer with
the SEC ("CoreCap Investments").
2. Romer persuaded at least 30 of his customers to sell securities in their
CoreCap Investments accounts and transfer the proceeds to either P&R Capital, LLC
("P&R Capital") or CoreCap Solutions, LLC ("CoreCap Solutions"). Romer represented to
customers that upon transferring money to P&R Capital and CoreCap Solutions, he would
invest their money in the stock market and earn them a better return than their current
3. Romer's statements to his customers were false. P&R Capital and CoreCap
Solutions were Romer's personal businesses and had no relationship to CoreCap
Investments. Romer did not invest the customers' money in the stock market for their
benefit. He instead stole the money for his own personal use. Romer commingled
approximately $2.7 million of customer funds with his advances from CoreCap Investments
and other sources for a total of approximately $4.4 million. Of that, Romer used
approximately $3.5 million for trading in his personal brokerage accounts, paid
approximately $714,000 to cover his personal expenses, paid approximately $343,000 to
customers of his prior brokerage firms, paid approximately $302,000 to customers of
CoreCap Investments, and transferred approximately $41,000 to family members. . . .
2. Between July 30, 2018 and October 9, 2018, Romer pled "no contest" to 13
counts of embezzlement in violation of Michigan Compiled Laws 750.174, a felony, before the
Macomb County Circuit Court in People v. Ernest Julius Romer III. On December 5, 2018,
Romer was convicted on the 13 counts of embezzlement and sentenced to 85 to 240 months in
prison and ordered to pay $2,650,000 in restitution.
3. The embezzlement counts of the criminal complaints to which Romer pled
no contest and to which he was convicted alleged, among other things, that as an agent, servant, or
employee of certain named persons and/or being a trustee, bailee, or custodian of the property of
such named persons, did convert to his own use or take or secrete with intent to convert to his own
use, without consent of his principal, money or personal property of his principal having a value
ranging from between $20,000 to $50,000 and/or $100,000 or more, that came into his possession
or under his charge or control by virtue of his relationship with the principal.
https://www.sec.gov/litigation/opinions/2019/34-86115.pdf, Romer is presently incarcerated at a correctional facility in Newberry, Michigan.
Some industry veterans and pundits might have you believe that Romer just appeared at his more recent brokerage firms out of the clear, blue sky. He was for all appearances a choir boy. No one should have had an inkling, a suspicion, a concern. Nothing should have tipped anyone off. No one should have seen a red flag or smelled smoke. Yeah, sure, that's how it was. He came to us for a job. We checked him out. Didn't see anything too out of the ordinary. After all, he wasn't barred from the biz by NASD, FINRA, any State, or even the SEC. If he's good enough for them, why shouldn't we have hired him? One final observation -- let's take a look at Romer's BrokerCheck heading "Employment Separation After Allegations," which contains four items:
- "Discharged" on January 20, 2017, by CoreCap Investments Inc. based upon allegations that Romer failed to report outside busienss activity involving loans from three clients;
- "Permitted to Resign" on December 1, 2005, by Comerica Securities, Inc. based upon allegations in a customer complaint that Romer failed to follow instructions involving a $200,000 investment amount;
- "Voluntary Resignation" on November 8, 1995 from Independence One Brokerage Services, Inc. based upon allegations that Romer borrowed money from a customer; and
- "Permitted to Resign" on October 11, 1998 from Nat City Investments, Inc. based upon allegations of unauthorized option trades.