Fixer Upper Biz Puts Stockbroker In Need of Career Renovation

October 9, 2017

Home fixer-upper shows are all the rage on television these days, and I even heard a radio advertisement for a seminar on how to make profits -- profits they say! -- from buying distressed real estate and rehabbing the property. You just buy the shambles of a home, put a few bucks into it, paint the walls with a neutral color, swap out some bathroom and kitchen faucets and knobs, and the profits roll in but for the occasional unanticipated need to rewire the entire house, bring the plumbing up to code, redo the foundation, eradicate the termites, and hire a mold abatement specialist. Some say that investing in real estate is just like investing in stocks or bonds. Come to think of it, a settling-and-cracking foundation and the Great Recession have a lot in common. In recent FINRA regulatory settlement, we see how the whole fixer-upper craze has found its way onto Wall Street.

Case In Point

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, Michael A. Crowe submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Michael A. Crowe, Respondent (AWC  2016051678001, October 2, 2017).

The AWC asserts that Crowe was first registered in 1982 and by 2012 was registered with FINRA member firm Securities America, Inc. (SAI"). The AWC asserts that he has "no prior disciplinary history."

BF, JF, RS, and SSH

The AWC alleges that among Crowe's customers were a married couple, who are identified only as "BF and JF." Also, Crowe knew RS, the owner of Simply Smart Homes ("SSH") who purportedly had a a history of buying foreclosed homes, fixing them, and then renting them for a profit.  At some point, Crowe suggested to BF and JF that they meet RS and consider diversifying their portfolio through an investment in SSH.

In April 2016,  Crowe arranged and attended a meeting among BF, JF, and RS, where the parties discussed RS's need for capital for the purpose of purchasing more homes. RS allegedly promised an 8% annual rate of return.

The $50,000 Investment

On April 2, 2016, BF and JF signed a joint venture agreement with SSH and provided a $50,000 check for investment in that company. The AWC asserts that Crowe was paid a $2,500 referral fee. Crowe allegedly did not provide prior written notice to or receive permission from SAI prior to participating in the investment.

SIDE BAR: The AWC does not state whether Crowe's referral fee was ever disclosed to BF and JF. 

Nasty Surprise

The AWC alleges that only a few days after the SSH investment at issue was made, Crowe learned of a lawsuit against RS for improper use of investor funds.

The AWC asserts that BF and JF received only a single $1,250 payment from SSH in July 2016 and nothing more.


In pertinent part, FINRA Rule 3280: Private Securities Transactions of an Associated Person states:

(a) Applicability
No 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 Notice
Prior 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 . . .

Notwithstanding FINRA's Private Securities Transaction ("PST") Rule, Crowe did not provide written notice to or receive permission from SAI before he participated in the SSH investment by BF and JF. The AWC asserts that on October 13, 2016, SAI filed a Uniform Termination Notice for Securities Industry Registration ("Form U5") terminating Crowe's registration for his allegedly having "Engaged in private securities transaction without Firm approval."


FINRA deemed Crowe's conduct to constitute violations of FINRA Rules 3280 and 2010. In accordance with the terms of the AWC, FINRA imposed upon Crowe a $5,000 fine; a one-month suspension from associating with any FINRA member firm in any capacity, and ordered $2,500 disgorgement plus interest.

Bill Singer's Comment

As stated in pertinent part in "Commission Sanctions Mesa Investment Professional in Connection with Unauthorized Real Estate Investment"( Arizona Corporation Commission Release, August 16, 2017): 

The Arizona Corporation Commission today revoked the securities salesman registration and investment adviser representative license of Michael A. Crowe of Mesa who recommended an unapproved real estate investment to a client. Also, the Commission ordered Crowe to pay a $2,500 an administrative penalty for his dishonest and unethical conduct.

The Commission found that Crowe recommended one of his clients diversify his retirement portfolio and invest in a fix-and-flip, real estate investment called Simply Smart Homes, LLC. The Commission found Crowe received a $2,500 sales commission for his client's $50,000 investment, but was subsequently terminated by his securities dealer for recommending an investment product not approved or recorded on the books of the securities dealer.

In a prior action, the Commission ordered restitution for investors in Simply Smart Homes, LLC that includes Crowe's client. In settling this matter, Crowe neither admits nor denies the Commission's findings, but agrees to the entry of the consent order. For more details about this case, view the full text of the Commission's order S-21012A-17-0140. 

Also read: 

In the Matter of and SIMPLY SMART HOMES, LLC, an Arizona limited liability company, SMART ENTERPRISES, LLC, an Arizona limited liability company, and RICHARD A. Smart, a single man, Respondents (NOTICE OF OPPORTUNITY FOR HEARING, DOCKET No. S-21002A-17-0016 , Arizona Corporation Commission / January 19, 2017)