Firm Fined $229,000, Ordered to Offer Rescission to Defrauded Investors, and Suspended Two Years From Engaging in Self-Offerings; Registered Representative Suspended Two Years
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that a FINRA hearing panel has sanctioned Avenir Financial Group, fining the NY-based firm $229,000 and suspending it for two years from engaging in any self-offerings of securities for misconduct including the fraudulent sales of equity interests in the firm and promissory notes. Additionally, the firm failed to provide to customers written disclosures regarding compensation from the sales and the use of proceeds in connection with the equity offerings, and inadequately supervised the firm’s capital raising. The hearing panel also barred former Chief Executive Officer and Chief Compliance Officer Michael Todd Clements from the securities industry for fraud, suspended registered representative Karim Ahmed Ibrahim (aka Chris Allen) for two years for fraud, and ordered Ibrahim to disgorge his $25,000 commission. In addition, Avenir, Clements and Ibrahim were ordered to offer rescission to defrauded customers. The hearing panel dismissed the charges that Clements aided and abetted the fraud, as well as the charge that Avenir misused customer funds. The decision resolves charges brought by FINRA's Department of Enforcement in April 2015. Since May 2015, the firm, Clements, and Ibrahim have been subject to a temporary cease and desist order pending the resolution of the charges.
The panel found that Avenir, Clements, and Ibrahim willfully misrepresented or omitted material facts in connection with sales of Avenir equity interests. The firm also willfully made misrepresentations in the sale of debt and equity interests in the holding company of the firm’s branch office. According to the decision, Avenir, which was thinly capitalized and in need of an immediate capital infusion to comply with net capital rules, sought funds from investors through an equity self-offering in 2013. Clements, who oversaw Ibrahim’s capital-raising efforts, directed Ibrahim to raise capital from customers who were told their funds would be used for Avenir’s day-to-day operations and growth. The decision noted there was much information Clements did not tell Ibrahim, including the firm’s precarious financial situation. In one instance, a 92-year-old customer was told his $250,000 investment would be used to grow the firm and fund its day-to-day operations, and that one day his investment would be returned “in a very large amount.” Beyond the purchase agreement, Ibrahim did not provide the customer with any written materials, including any written information about the firm. Ibrahim admitted in testimony prior to the hearing that he was aware that Avenir faced a dire regulatory capital situation, yet he did not disclose this material fact to the customer.
The decision noted another example involving wrongdoing in connection with sales of equity and promissory notes by Cesar Rodriguez, another registered representative under Clements’ direct supervision whom FINRA later barred in April 2015. The panel noted that Rodriguez sold a 2 percent equity interest in Avenir for $100,000 to a customer who had recently lost his daughter in a car accident, and was investing the life insurance proceeds to provide for his six-year-old grandchild’s future. Rodriguez and Clements assured the customer that Avenir was a growth company that was doing “exceptionally well” and was “growing exponentially.” According to the decision, Clements did not provide the customer with any written documents except for the purchase agreement, and neglected to provide any information about the firm’s financial condition, including that Avenir had recently been prohibited for several weeks from conducting a securities business due to insufficient capital. Rodriguez later also sold him equity and promissory notes in the branch office holding company.
The panel noted in its decision that Avenir and Clements failed to accept responsibility for their misconduct and that Ibrahim failed to express remorse, all of which were aggravating factors considered when assessing sanctions.
Unless the hearing panel's decision is appealed to FINRA's National Adjudicatory Council (NAC), or is called for review by the NAC, the hearing panel's decision becomes final after 45 days.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2015, members of the public used this service to conduct 71 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database. Investors can also call FINRA's Securities Helpline for Seniors at (844) 57-HELPS for assistance or to raise concerns about issues they have with their brokerage accounts and investments.
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