FINRA Expels Brokerage Firm Halcyon Partners and Its Principals for Widespread Securities Fraud
A recent press release by The Financial Industry Regulatory Authority (FINRA) the regulator announced that it has expelled New York-based Halcyon Cabot Partners, Ltd., (Halcyon Cabot) and barred its CEO Michael Morris (Morris) and CCO Ronald Heineman (Heineman) from the securities industry on allegations of fraud, sales practice abuses, and widespread supervisory and anti-money laundering (AML) failures.
FINRA alleged that between December 2010 and May 2013, Halcyon Cabot and its principals, Morris and Heineman, engaged in serious and widespread violations of FINRA rules and federal securities laws. FINRA describes a several scheme where the Respondents defrauded investors by causing the firm to: (1) serve as a bogus placement agent to conceal a kickback of a private placement fee; (2) serve as a false sales agent for a now-expelled brokerage firm could charge commissions to both buyers and sellers in private sales of securities; (3) falsified the books and records to conceal a broker’s sale of securities in states where he was not registered; (4) and engaged in unauthorized and excessive trading (churning) in customer accounts. FINRA found that these violations were made possible by the Halcyon Cabot’s culture of non-compliance.
FINRA alleged that in May 2012, Halcyon Cabot, Morris, Heineman, and a now-barred broker, Craig L. Josephberg (Josephberg), agreed that Halcyon Cabot would help conceal the discount provided to a venture capital firm, Socius Capital Group, LLC (Socius), when the company purchased a private placement in cancer drug development company Cell Therapeutics, Inc. (Cell Therapeutics). FINRA found that Halcyon Cabot entered into a sham placement agent agreement with Cell Therapeutics designating Halcyon Cabot as placement agent. Cell Therapeutics then included the sham placement agent agreement as an exhibit in a Form 8-K filing with the SEC indicating that Halcyon Cabot would earn a five percent fee. In reality, Halcyon Cabot also entered into an undisclosed sham consulting agreements with an affiliate of Socius where Halcyon Cabot funneled back the five percent fee to Socius.
FINRA also alleged that between December 2010 and February 2012, Halcyon Cabot through Morris, improperly facilitated efforts by brokerage firm Felix Investments, LLC (Felix) to collect commissions in certain private securities transactions from both buyers and sellers that created a conflict of interest. FINRA found that Halcyon Cabot allowed a Felix broker to dually register with both firms so that Felix could charge buyer commissions and Halcyon could charge seller commissions as a way to avoid the securities rules. In addition, Halcyon Cabot secretly channeled most of the sellers’ commission payments to Felix under a commission-sharing agreement and failed to disclose to the sellers whom it purported to represent
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