Firm Engaged in Scheme to Conceal Kickback of Private Placement Fees
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has expelled New York-based Halcyon Cabot Partners, Ltd., and barred Chief Executive Officer Michael Morris and Chief Compliance Officer Ronald Heineman from the securities industry, for fraud, sales practice abuses, and widespread supervisory and anti-money laundering failures. FINRA found that Halcyon, Morris and Heineman engaged in a scheme to conceal a kickback of private placement fees.
FINRA's investigation found that Halcyon, Morris and Heineman, along with a previously barred registered representative, Craig Josephberg, agreed to conceal the discount the issuer provided to a venture capital firm when it purchased a private placement in a cancer drug development company. The scheme was effected through a bogus placement fee agreement that was entered into after the venture capital firm had already agreed to purchase the entirety of the offerings. Halcyon did not perform any work, as there was already a buyer in place, but rather returned almost all of its $1.75 million placement fee to the investor through sham consulting agreements. This fraudulent scheme allowed the drug company to conceal that it was selling its shares at a discount.
Brad Bennett, FINRA's Executive Vice President and Chief of Enforcement, said, "This sham placement arrangement allowed the investor to conceal the kickback of the placement fee and thus deceive the market into believing that the shares were being sold at the full offering price. These actions were consistent with the culture of non-compliance fostered by Halcyon and its principals, which manifested itself in widespread sales practice abuses and AML violations that are also detailed in this case."
In addition to the kickback scheme, FINRA also found that Halcyon and Morris enabled a now-expelled broker-dealer, Felix Investments, LLC, to collect undisclosed commissions. Pursuant to an agreement between Halcyon and Felix, Felix charged buyer commissions and Halcyon charged seller commissions on a transaction, despite the fact Halcyon did not provide any services to the sellers. Halcyon then secretly shared the sellers' commissions with Felix.
FINRA also found that Morris falsified Halcyon's books and records to conceal Josephberg's sales of securities in states where he was not registered, including Florida, Texas and Colorado. Halcyon also failed to supervise Josephberg, who churned retail customer accounts and effected unauthorized trades.
In concluding this settlement, Halcyon Cabot Partners, Morris and Heineman neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
FINRA's investigation was conducted by the Departments of Enforcement and Member Regulation.
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 2014, members of the public used this service to conduct 18.9 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.
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