Using Promissory Note Proceeds For Weed Whacker Doesn't Cut It With FINRA

September 16, 2011

For the purpose of settling violations alleged by the Financial Industry Regulatory Authority ("FINRA") but without admitting or denying the findings, Krittibas Ray submitted a Letter of Acceptance, Waiver and Consent ("AWC") that the self-regulatory organization accepted. In the Matter of Krittibas Ray, Respondent (AWC/20100237817-01, September 13, 2011).


Ray was registered with FINRA member firms from 1998 until September 29, 2010. He had no disciplinary history.

Start-up Vehicle

The AWC alleged that starting around January 2008, Ray began soliciting investors to purchase promissory notes, which he marketed as a vehicle to fund the start-up and on-going expenses of a hedge fund. Thereafter, from 2009 through September 2010, Ray solicited investors to purchase promissory notes to fund the start-up and on-going expenses of a second hedge fund. It was alleged that at least 15 investors purchased more than $675,000 in promissory notes from Ray.

Although he was purportedly soliciting investments for promissory notes, Ray told many prospective investors that they were investing in bonds. Regardless of his characterization, the investment was depicted as paying between 7% and 8.5% interest annually - these above-US-market rates were purportedly made possible because Ray claimed he would be investing in the State Bank of India, which was supposedly paying up to 9% interest.

Okay, so, what can I say - if it's too good to be true it usually is, is called a maxim for a reason. It's almost always correct.

Spoiler Alert! Before reading further, if you want to guess how this one's going to turn out, do it now. What do you think that Ray did with the funds from his investors?

The AWC alleged that Ray used a portion of the proceeds for his own personal expenses. In fact, his defrauded investors didn't even come close to seeing their funds to into the State Bank of India, or into any state bank, or even into any bank. To the contrary, Ray used more than $80,000 of the misappropriated funds to pay his divorce attorney. Of course, why stop there? He also paid for child care. And, to top it off, if you're diverting investment funds to your lawyer and for child care, you may as well have you lawn mowed. Yup, Ray used his investors' funds for lawn care services.

Of course, these days, if you're going to divert investors' funds for your personal use, you may as well toss in that old reliable Ponzi scam.  Apparently, not being one content to stand on ceremony, Ray opted to go that route too. The AWC alleged that Ray also used proceeds from the sales of a later batch of promissory notes to pay interest and repay principal due on notes held by at least six earlier noteholders. Ah yes, that old familiar Ponzi!

Private Securities Transactions

From 2008 through September 2010, when Ray was recommending and selling promissory notes to at least 15 investors, the AWC alleged that each such transaction was a violation of NASD Rule 3040, which regulated "private securities transaction."  The AWC alleged that in violation of Rule 3040, Ray failed to provide written notice of his promissory note activities to his FINRA member firm employer. Such notice was required to describe in detail the proposed transaction and Ray's role. Further, Ray was obligated to disclose whether he would had or would receive selling compensation.

Adding Up the Violations

Based upon the alleged private securities transactions, each instance was charged by FINRA as a violation of NASD Rules 2110 and 3040; NASD Rule 3040; and FINRA Rule 2010 (as applicable on the various dates).  Additionally, Ray's solicitation and sales of the promissory notes were charged as violations of NASD Rules 2110 and 2120; FINRA Rules 2010 and 2020; and as willful violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.


Pursuant to the AWC, FINRA imposed a Bar in all capacities from associating with any FINRA member.

To learn more about Private Securities Transactions violations, READ