May 10, 2019
Wall Street regulates the so-called Outside Business Activities ("OBA") and Private Securities Transactions ("PST") of its associated persons/registered representatives. Some say it's necessary and appropriate regulation. Others say its overly intrusive and unfair. Regardless of where you stand on OBAs and PSTs, FINRA member firms have in-house compliance policies and the self-regulator routinely enforces its rules. In a recent FINRA Acceptance, Waiver and Consent regulatory settlement, we come across one unfortunate fellow who allegedly engaged in five OBAs and two PSTs without providing the requisite prior written notice to Merrill Lynch. It doesn't end well for him.
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 Milad Tanha submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Michael Milad Tanha, Respondent (FINRA AWC 2017054650301, April 25, 2019)
The AWC asserts that Tanha was first registered in 2013 and from October 2014 to June 2017, he was associated with FINRA member firm Merrill Lynch, Pierce, Fenner & Smith Incorporated. The AWC asserts that "Tanha does not have any disciplinary history with the Securities and Exchange
Commission, any state regulator, FINRA, or any other self-regulatory
Entity A: Social Media
The AWC asserts that in April 2015, Tanha co-founded Entity A, a corporation purportedly created to enable its
clients to communicate with celebrities on social media for a fee. From Entity A's inception through December 2016, Tanha was the company's Treasurer and a Board member. The AWC further asserts that Tanha had received 18% of Entity A's stock, which he jointly held with another co-founder. Tanha's responsibilities included marketing, capital
raising, and working with lawyers and accountants to incorporate Entity A and
pay its taxes.
The AWC alleges that from June 2015 to February 2016, Tanha solicited securities investments in Entity A from at least three investors, two of whom were Merrill Lynch customers. One investor purchased $250,000 of Entity A stock; the other two purchased $100,000 of Entity A convertible debt (exchangeable into stock).
The AWC alleges that it was only on December 28, 2017, when Tanha provided written notice to Merrill Lynch about his Entity A activities -- at which time he only first requested permission from his employer to engage in the cited activities. The AWC asserts that in response to Tanha's December 28th request, Merrill Lynch denied permission that same day. Thereafter, Tanha resigned as Entity A's Treasurer on January 6, 2017, and purportedly told Merrill Lynch that he was no longer working for Entity A; however, the AWC alleges that he:
continued to sit on its board, hold its stock, and perform the same substantive work for it through he end of 2016.
Further, the AWC asserts that on May 31, 2016, Tanha submitted a Merrill Lynch compliance questionnaire on which he had allegedly:
inaccurately stated that he did not recommend or refer any sales, purchases, or private securities transactions which are not offered through, approved by, or sponsored by the Firm between May 2015 and May 2016.
Entity B: The Fitness Center
The AWC asserts that in August 2016, Tanha co-founded Entity B, a limited liability company purportedly "formed to facilitate the creation of a fitness center." From Entity B's inception through May 2017, Tanha jointly held with one of the company's co-founders a majority interest. Tanha's responsibilities included marketing, capital raising, hiring, and obtaining equipment for Entity B by signing a personal guarantee. Tanha did not provide prior written notice to Merrill Lynch regarding his involvement with Entity B.
The AWC characterizes Tanha's alleged capital raising efforts for Entity B as including helping to structure investment agreements, sending the investment agreements to potential investors, and voting to approve the issuance of ownership interests to those investors. Between January and February 2017, the AWC asserts that Tanha solicited and facilitated securities investments from five individuals, who invested a total of $150,000 in Entity B.
The AWC alleges that Tanha engaged in the cited activities without first providing written notice to Merrill Lynch or receiving the firm's approval.
Life Insurance Sale
The AWC alleges that in late 2015, Tanha received a $40,000 commission for his sale of a life insurance policy to a friend. The AWC asserts that Tanha did not provide prior written notice to Merrill
Lynch of either the insurance sale or the commission.
Real Estate Referral
The AWC alleges that n January 2015, Tanha referred a friend to a real estate agent. Tanha was allegedly paid a $16,000 referral fee after the friend purchased a home from the agent. The AWC asserts that Tanha did not provide prior written notice to Merrill Lynch of either the referral
or the referral fee.
The AWC alleges that in early 2015, Tanha introduced a vendor that sells tickets for sports, music, and
entertainment events to two entities that were putting on music festivals, for which he was paid $12,000 in fees. The AWC asserts that Tanha did not provide
prior written notice to Merrill Lynch of either the introductions or the fees.
2015 and 2016 ACQs
The AWC alleges that on June 1, 2015, and May 31, 2016, Tanha submitted two annual Merrill Lynch compliance
questionnaires ("ACQs"), which inaccurately disclosed the above activities cited in the AWC.
The AWC asserts that per Uniform Termination Notice for Securities Industry Registration ("Form U5") dated June 14, 2017, Merrill Lynch reported that Tanha's registrations were voluntarily terminated
FINRA deemed that between January 2015 and May 2017, Tanha engaged in five outside business activities ("OBAs") without providing prior
written notice to Merrill Lynch, in violation of FINRA Rules 3270 and 2010. Additionally, in connection with two of OBAs, Tanha participated in
private securities transactions ("PSTs") without
providing prior written notice to or receiving approval from the Firm, in violation
of NASD Rule 3040 and FINRA Rules 3280 and 2010. In accordance with the terms of the AWC, FINRA imposed upon Tanha a $15,000 fine and a 10-month-suspension in all capacities from association with any FINRA member firm.
From the Bank of Spalding (or is that "Spaldeen" ?) FINRA Department of Enforcement, Complainant, v. Michael Joseph Clarke, Respondent (FINRA Hearing Panel Decision)
5 OBAs, 2 PSTs, $15,000 Fine and 10 Month Suspension in 1 FINRA AWC (BrokeAndBroker.com Blog)
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