FINRA Rule 3280: Private Securities Transactions of an Associated Person(a) ApplicabilityNo person associated with a member shall participate in any manner in a private securities transaction except in accordance with the requirements of this Rule.(b) Written NoticePrior to participating in any private securities transaction, an associated person shall provide written notice to the member with which he is associated describing in detail the proposed transaction and the person's proposed role therein and stating whether he has received or may receive selling compensation in connection with the transaction; provided however that, in the case of a series of related transactions in which no selling compensation has been or will be received, an associated person may provide a single written notice.(c) Transactions for Compensation(1) In the case of a transaction in which an associated person has received or may receive selling compensation, a member which has received notice pursuant to paragraph (b) shall advise the associated person in writing stating whether the member:(A) approves the person's participation in the proposed transaction; or(B) disapproves the person's participation in the proposed transaction.(2) If the member approves a person's participation in a transaction pursuant to paragraph (c)(1), the transaction shall be recorded on the books and records of the member and the member shall supervise the person's participation in the transaction as if the transaction were executed on behalf of the member.(3) If the member disapproves a person's participation pursuant to paragraph (c)(1), the person shall not participate in the transaction in any manner, directly or indirectly.(d) Transactions Not for CompensationIn the case of a transaction or a series of related transactions in which an associated person has not and will not receive any selling compensation, a member which has received notice pursuant to paragraph (b) shall provide the associated person prompt written acknowledgment of said notice and may, at its discretion, require the person to adhere to specified conditions in connection with his participation in the transaction.(e) DefinitionsFor purposes of this Rule, the following terms shall have the stated meanings:(1) "Private securities transaction" shall mean any securities transaction outside the regular course or scope of an associated person's employment with a member, including, though not limited to, new offerings of securities which are not registered with the Commission, provided however that transactions subject to the notification requirements of NASD Rule 3050, transactions among immediate family members (as defined in FINRA Rule 5130), for which no associated person receives any selling compensation, and personal transactions in investment company and variable annuity securities, shall be excluded.(2) "Selling compensation" shall mean any compensation paid directly or indirectly from whatever source in connection with or as a result of the purchase or sale of a security, including, though not limited to, commissions; finder's fees; securities or rights to acquire securities; rights of participation in profits, tax benefits, or dissolution proceeds, as a general partner or otherwise; or expense reimbursements.
Application for RegistrationSec. 2. (a) Application by any person for registration with the Corporation, properly signed by the applicant, shall be made to the Corporation via electronic process or such other process as the Corporation may prescribe, on the form to be prescribed by the Corporation and shall contain:
(1) an agreement to comply with the federal securities laws, the rules and regulations thereunder, the rules of the Municipal Securities Rulemaking Board and the Treasury Department, the By-Laws of the Corporation, NASD Regulation, and NASD Dispute Resolution, the Rules of the Corporation, and all rulings, orders, directions, and decisions issued and sanctions imposed under the Rules of the Corporation; and(2) such other reasonable information with respect to the applicant as the Corporation may require.
(b) The Corporation shall not approve an application for registration of any person who is not eligible to be an associated person of a member under the provisions of Article III, Section 3.(c) Every application for registration filed with the Corporation shall be kept current at all times by supplementary amendments via electronic process or such other process as the Corporation may prescribe to the original application. Such amendment to the application shall be filed with the Corporation not later than 30 days after learning of the facts or circumstances giving rise to the amendment. If such amendment involves a statutory disqualification as defined in Section 3(a)(39) and Section 15(b)(4) of the Act, such amendment shall be filed not later than ten days after such disqualification occurs.
No member or person associated with a member shall file with FINRA information with respect to membership or registration which is incomplete or inaccurate so as to be misleading, or which could in any way tend to mislead, or fail to correct such filing after notice thereof.
Financial Disclosure14K. Within the past 10 years:(1) have you made a compromise with creditors, filed a bankruptcy petition or been the subject of an involuntary bankruptcy petition?(2) based upon events that occurred while you exercised control over it, has an organization made a compromise with creditors, filed a bankruptcy petition or been the subject of an involuntary bankruptcy petition?(3) based upon events that occurred while you exercised control over it, has a broker or dealer been the subject of an involuntary bankruptcy petition, or had a trustee appointed, or had a direct payment procedure initiated under the Securities Investor Protection Act?14L. Has a bonding company ever denied, paid out on, or revoked a bond for you?14M. Do you have any unsatisfied judgments or liens against you?
Bill Singer's CommentI understand that this settlement includes a finding that I willfully omitted to state a material fact on a Form U4, and that under Section 3(a)(39)(F) of the Securities Exchange Act of 1934 and Article III, Section 4 of FINRA's By-Laws, this omission makes me subject to a statutory disqualification with respect to association with a member.
EIGHT LIMITED PARTNERS IN ILLUME FUND, LP ("ILLUME") FILED TWO SEPARATE ARBITRATIONS (13-03396 AND 13-03722) AGAINST SUMMIT, WHICH WERE COMBINED PRIOR TO SETTLEMENT. THE STATEMENTS OF CLAIM ALLEGED MISCONDUCT BY MR. GROSS IN 2011 IN CONNECTION WITH THE SALE OF THE ILLUME LIMITED PARTNERSHIP INTERESTS. MR. GROSS SOLD THOSE LIMITED PARTNERSHIP INTERESTS THROUGH GEH, HIS OWN BROKER-DEALER WHICH WAS NOT AFFILIATED WITH SUMMIT. THE CLIENTS, WHO WERE ALL SOPHISTICATED AND EXPERIENCED, ALL ACKNOWLEDGED IN WRITING AT THE TIME OF THE INVESTMENTS THAT SUMMIT HAD NOTHING TO DO WITH THE INVESTMENTS. HOWEVER, CLAIMANTS ALLEGED THAT MR. GROSS MISREPRESENTED ILLUME AND THAT SUMMIT HAD A DUTY TO SUPERVISE MR GROSS IN CONNECTION WITH THE SALES OF THE ILLUME INVESTMENTS THROUGH GEH. GEH AND GROSS WERE INITIALLY NAMED AS RESPONDENTS IN 13-03396 BUT WERE DISMISSED FROM THE CASE AFTER GROSS AND GEH FILED BANKRUPTCY PETITIONS FOR REASONS UNRELATED TO ILLUME AND PRIOR TO SETTLEMENT. GEH AND GROSS WERE NEVER NAMED AS RESPONDENTS IN 13-3722. SUMMIT SETTLED WITH CLAIMANTS WHO, AMONG OTHER THINGS, ASSIGNED ALL OF THEIR CLAIMS AGAINST ILLUME AND ITS MANGER TO SUMMIT.
THE ILLUME INVESTMENTS WERE SUITABLE FOR CLAIMANTS AND NO MISREPRESENTATIONS WERE MADE CONCERNING ILLUME. LOSSES SUFFERED BY THE LIMITED PARTNERS, INCLUDING ME, WERE CAUSED BY THE GENERAL PARTNER AND INVESTMENT MANAGER FOR ILLUME IN AUGUST 2011. I WAS NOT REPRESENTED IN THE MEDIATION THAT LED TO THE SETTLEMENT BY SUMMIT.
In 2001, Summit allowed DG to form a broker-dealer, GEH, to sell the securities of DC, a hedge fund that DG controlled. The Firm, through McNeer, placed two restrictions on DG's association with GEH. First, McNeer instructed DG that he would be permitted to sell only DC securities through GEH. Second, McNeer required "that all sales or placement of any security product must be booked and received through Summit Equities, Inc."Contrary to McNeer's instructions, DG used GEH to sell the securities of several different hedge funds other than DC and never reported these sales to the Firm as required by McNeer and the Firm's procedures governing private securities transactions. For example, from June 2011 through September 2011, DG sold approximately $6.2 million in limited partnership interests in IME Fund, a hedge fund that traded options, to 11 accredited investors, all of whom were Summit customers. DG never disclosed these sales to Summit. In September 2011, the IME Fund collapsed, and investors lost approximately 95% of their investments.
McNeer failed to adequately supervise DG's activities through GEH. McNeer never examined GEH's books and records, reviewed DG's GEH emails or conducted an on-site visit of GEH's office. In fact, McNeer failed to take any steps to supervise DG's sales activities through GEH or to ensure that DG complied with the Firm's restrictions on DG's sales through GEH.In addition, McNeer failed to detect several "red flags" that should have alerted him to DG's IME Fund activity. For example, in May and July 2011, DG requested $2.5 million in wire transfers from the Summit accounts of five customers to fund their investments in the IME Fund. McNeer approved two of the wire transfers in his capacity as a Firm principal, but never questioned DG about these transactions.