FINRA

WILLFULLY VIOLATED SECTION 10(B) OF THE SECURITIES EXCHANGE ACT OF 1934, RULE 10B-5 PROMULGATED THEREUNDER, VIOLATED SECTION 5 OF THE SECURITIES ACT OF 1933, FINRA RULES 2010, 2020, NASD RULES 2110, 2120, 2310, 3010, 3010(A), 3010(B), 3011(A), 3011(C), 3011(E), 3070, 3110: KARAPETYAN, HIS MEMBER FIRM AND AN INDIVIDUAL KNOWINGLY OR RECKLESSLY MADE A SERIES OF MATERIAL MISREPRESENTATIONS AND OMISSIONS, AND ENGAGED IN FRAUDULENT MISCONDUCT, IN CONNECTION WITH THE SALE OF PRIVATE PLACEMENT OFFERINGS TO INVESTORS OUTSIDE THE STATE OF FLORIDA USING THE MAILS OR OTHER MEANS OR INSTRUMENTALITIES OF INTERSTATE COMMERCE. KARAPETYAN, THE FIRM AND THE INDIVIDUAL, REPEATEDLY DEFRAUDED CUSTOMERS IN SELLING PRIVATE PLACEMENT OFFERINGS INVOLVING HIGHLY SUSPECT AND FINANCIALLY STRUGGLING ISSUERS. IN THREE OF THE OFFERINGS, KARAPETYAN, THE FIRM AND INDIVIDUAL RECEIVED SUBSTANTIAL UNDISCLOSED COMPENSATION-COMMISSIONS, FEES, MARKUPS, SALARY OR LOANS-AND ALSO FAILED TO DISCLOSE OTHER MATERIAL FACTS TO INVESTORS: (I) THE ISSUERS HAD SUBSTANTIAL OUTSTANDING DEBTS TO BE PAID FROM PROCEEDS RAISED IN THE OFFERINGS; (II) THE PROCEEDS FROM THE OFFERINGS WERE TO BE USED TO MAKE UNSECURED LOANS TO OTHER ENTITIES KARAPETYAN OWNED AND CONTROLLED; OR (III) THE ISSUERS' FINANCIAL CONDITION WAS TENUOUS. KARAPETYAN, THE FIRM AND THE INDIVIDUAL COLLECTED APPROXIMATELY $1.8 MILLION FROM CUSTOMERS WHILE EARNING APPROXIMATELY $228,000 IN COMMISSIONS AND FEES. IN ONE OF THE OFFERINGS, THE FIRM FRAUDULENTLY MISREPRESENTED THE SHARE PRICE, RESULTING IN $55,000 IN ADDITIONAL COMPENSATION. ($25,000 OF WHICH WAS ULTIMATELY RECEIVED AS COMPENSATION BY KARAPETYAN AND THE INDIVIDUAL). KARAPETYAN AND THE FIRM FAILED TO CONDUCT A REASONABLE INVESTIGATION PRIOR TO RECOMMENDING THAT ITS CUSTOMERS INVEST IN AN ENTITY TO PURCHASE A STOCK. HAD THEY CONDUCTED A REASONABLE INVESTIGATION, IT WOULD HAVE BEEN DETERMINED THAT THE SECURITY WAS NOT SUITABLE FOR ANY OF THE FIRM'S CUSTOMERS. RATHER THAN CONDUCTING A REASONABLE INVESTIGATION, KARAPETYAN AND THE FIRM RELIED ALMOST ENTIRELY ON UNSUBSTANTIATED STATEMENTS TOUTING THE COMPANY AS "THE NEXT GOOGLE" AND INDICATING THAT THE COMPANY WAS PLANNING AN INITIAL PUBLIC OFFERING (IPO). ALTHOUGH KARAPETYAN AND THE FIRM REQUESTED AUDITED FINANCIAL DATA, THEY NEVER RECEIVED AUDITED INFORMATION. KARAPETYAN AND THE FIRM ALSO ASKED REPEATEDLY FOR THE IDENTITY OF THE SHAREHOLDER SELLING THE LARGE BLOCK OF SHARES BEING OFFERED BY THE FIRM TO ITS CUSTOMERS, BUT WAS NEVER GIVEN THIS INFORMATION. AS IT TURNED OUT, THE SELLING SHAREHOLDER WAS THE COMPANY'S FOUNDER, WHO CONTINUED TO PROVIDE CONSULTING SERVICES TO THE COMPANY, BUT WHO HAD BEEN CONVICTED OF SECURITIES FRAUD IN BOTH THE U.S. AND FRANCE AND HAD BEEN BANNED FROM WORKING IN THE SECURITIES INDUSTRY. KARAPETYAN WAS AWARE OF THE FOUNDER'S CRIMINAL HISTORY PRIOR TO OFFERING THE SECURITY TO CUSTOMERS. THE FACT THAT THE ISSUER DID NOT PROVIDE THE AUDITED FINANCIAL INFORMATION REQUESTED BY THE FIRM WAS ITSELF A SIGNIFICANT RED FLAG. IN ADDITION, THE BUSINESS PLAN REVIEWED BY KARAPETYAN AND THE INDIVIDUAL CONTAINED UNAUDITED FINANCIALS INDICATING THAT THE COMPANY GENERATED ALMOST NO REVENUE FROM ITS SEARCH ENGINE TECHNOLOGY AND THE FINANCIALS STATED THAT THE COMPANY EXPERIENCED NET LOSSES IN 2004 AND ANTICIPATED LOSSES IN 2005 AND 2006. KARAPETYAN AND THE FIRM FAILED TO COMPLY WITH THE REQUIREMENTS OF SECTION 5 OF THE SECURITIES ACT BY PARTICIPATING IN THE SALE OF UNREGISTERED SHARES OF A CORPORATION. DESPITE NUMEROUS RED FLAGS RELATING TO THE TRANSACTIONS, KARAPETYAN AND THE FIRM FAILED TO UNDERTAKE ANY INVESTIGATION TO DETERMINE THE CIRCUMSTANCES UNDER WHICH A CUSTOMER WHO OPENED ACCOUNTS FOR ENTITIES OBTAINED THE CORPORATION'S SHARES, INCLUDING WHEN THE SHARES WERE OBTAINED, HOW THE SHARES WERE OBTAINED, AND WHETHER THE SHARES WERE PAID FOR. [CONTINUED IN COMMENT]

Decision & Order of Offer of Settlement

Bar (Permanent)

All Capacities

Indefinite

9/28/2012

[CONTINUED FROM ALLEGATIONS]: IN ADDITION, KARAPETYAN AND THE FIRM FAILED TO CONDUCT ANY INQUIRY INTO THE REGISTRATION STATUS OF THE LARGE NUMBER OF SHARES DEPOSITED INTO EACH OF THE ACCOUNTS, THE CUSTOMER'S ROLE IN ACTING AT THE BEHEST OF AN UNDISCLOSED PRINCIPAL OR A CONTROL PERSON OF THE CORPORATION, AND THE EXECUTION OF THE WIRE TRANSFERS PROMPTLY FOLLOWING THE SALES OF THE CORPORATION'S STOCK. THE FIRM FAILED TO ESTABLISH AND IMPLEMENT POLICIES AND PROCEDURES THAT CAN BE REASONABLY EXPECTED TO DETECT AND CAUSE THE REPORTING OF SUSPICIOUS ACTIVITY AND FAILED TO INVESTIGATE AND FILE SUSPICIOUS ACTIVITY REPORTS RELATING TO THE CORPORATION'S STOCK. KARAPETYAN HAD THE SOLE RESPONSIBILITY AT THE FIRM FOR SELLING THE SHARES FROM THE ACCOUNTS ON THE OPEN MARKET. THESE TRANSACTIONS GENERATED $94,245 IN COMMISSIONS. KARAPETYAN AND THE FIRM FAILED TO MEET ITS ANTI-MONEY LAUNDERING (AML) COMPLIANCE, TESTING AND TRAINING OBLIGATIONS. KARAPETYAN AND THE FIRM FAILED TO CONDUCT AN AML TEST DURING ONE CALENDAR YEAR, FAILED TO CONDUCT AN INDEPENDENT AML TEST IN ANOTHER YEAR, AND FAILED TO CONDUCT AML TRAINING DURING A CALENDAR YEAR. THE FIRM FAILED TO CAPTURE AND PRESERVE BUSINESS EMAIL COMMUNICATIONS SENT THROUGH PERSONAL, WEB-BASED EMAIL ACCOUNTS OF KARAPETYAN. THE FIRM DID NOT STORE OR BACK UP ANY EMAILS FROM KARAPETYAN'S PERSONAL EMAIL ACCOUNTS USING ITS CAPTURE AND STORAGE SERVICE AND FAILED TO COLLECT AND RETAIN THE EMAILS IN ANY ORGANIZED MANNER OR SYSTEMATIC PRACTICE. THE FIRM, NOR KARAPETYAN, ITS CHIEF EXECUTIVE OFFICER (CEO), CHIEF COMPLIANCE OFFICER (CCO) AND AML COMPLIANCE OFFICER, REPORTED CUSTOMER COMPLAINTS TO FINRA AS REQUIRED. IN FAILING TO REPORT CUSTOMER COMPLAINTS, THE FIRM FAILED TO REPORT OTHER CUSTOMER COMPLAINTS IN A TIMELY MANNER TO FINRA. THE FIRM AND KARAPETYAN, IN HIS CAPACITY AS CEO, CCO AND AML COMPLIANCE OFFICER, FAILED TO ESTABLISH AND MAINTAIN A SUPERVISORY SYSTEM, AND FAILED TO ESTABLISH, MAINTAIN AND ENFORCE WRITTEN SUPERVISORY PROCEDURES (WSPS) REASONABLY DESIGNED TO ACHIEVE COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS WITH RESPECT TO THE FIRM'S BUSINESS. KARAPETYAN AND THE FIRM FAILED TO ESTABLISH AND MAINTAIN WRITTEN PROCEDURES FOR THE HANDLING OF DEPOSITS AND LIQUIDATIONS OF LARGE BLOCKS OF LOW-PRICED SECURITIES TO ENSURE THAT THE FIRM DID NOT PARTICIPATE IN OR PERMIT AN UNREGISTERED DISTRIBUTION OF SECURITIES. THE FIRM'S WSPS DID NOT ADDRESS HOW THE FIRM WOULD DETERMINE WHETHER SECURITIES DEPOSITED AND SOLD AT THE FIRM WERE REGISTERED OR EXEMPT FROM REGISTRATION. AS A RESULT, THE UNREGISTERED DISTRIBUTION OF THE CORPORATION'S STOCK PROCEEDED WITHOUT APPROPRIATE REVIEW BY THE FIRM. KARAPETYAN AND THE FIRM HAD INADEQUATE SYSTEMS AND PROCEDURES RELATING TO THE REPORTING OF CUSTOMER COMPLAINTS AND FAILED TO ESTABLISH AND MAINTAIN WRITTEN PROCEDURES TO ENSURE THAT BUSINESS EMAIL CORRESPONDENCE FROM PERSONAL WEB-BASED EMAIL ACCOUNTS WOULD BE CAPTURED AND PRESERVED. KARAPETYAN AND THE FIRM FAILED TO ESTABLISH AND MAINTAIN A REASONABLE SUPERVISORY SYSTEM, AND FAILED TO ESTABLISH AND MAINTAIN WRITTEN PROCEDURES REGARDING THE FIRM'S PRIVATE PLACEMENT BUSINESS. THE FIRM'S WSPS DO NOT CONTAIN ANY PROCEDURES WITH RESPECT TO THE REVIEW AND APPROVAL OF THE CONTENT OF PRIVATE PLACEMENT MEMORANDA OR ANY OTHER OFFERING MATERIALS USED BY THE FIRM IN THE SALE OF PRIVATE PLACEMENT OFFERINGS. FURTHER, THERE IS NO REQUIREMENT THAT KARAPETYAN, OR ANY OTHER PRINCIPAL OF THE FIRM REVIEW OFFERING MATERIALS FOR ACCURACY OR TO DETERMINE WHETHER MATERIAL FACTS WERE DISCLOSED. IN ADDITION, KARAPETYAN AND THE FIRM FAILED TO ADEQUATELY SUPERVISE THE REGISTERED REPRESENTATIVES WHO PARTICIPATED IN THE SALE OF PRIVATE PLACEMENT OFFERINGS SOLD BY THE FIRM. ORIGINAL COMPLAINT FILED 12/20/2011. WITHOUT ADMITTING OR DENYING THE ALLEGATIONS, KARAPETYAN CONSENTED TO THE DESCRIBED SANCTION AND TO THE ENTRY OF FINDINGS; THEREFORE, HE IS BARRED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY CAPACITY.

MR. KARAPETYAN AND BASIS DISAGREE WITH FINRA THAT THERE IS A PROPER BASIS TO COMMENCE AN ENFORCEMENT ACTION ON ALL THE NOTED ITEMS. IF AN ENFORCEMENT ACTION IS AUTHORIZED BY FINRA AND A REASONABLE AND FAIR RESOLUTION CANNOT BE REACHED, BOTH MR. KARAPETYAN AND BASIS INTEND TO CONTEND VIGOROUSLY ANY ACTION THAT IS BROUGHT.

CLAIMANTS ALLEGE THAT MR. KARAPETYAN FAILED TO ADHERE TO A SETTLEMENT AGREEMENT MADE ON JUNE 13, 2006, IN WHICH MR. KARAPETYAN AGREED TO BUY BACK THE CLAIMANTS' INTEREST IN SOUTHEASTERN FINANCIAL HOLDINGS, LLC FOR $100,000.

$78,000.00

$62,033.89

TO DATE MR. KARAPETYAN HAS PAID $63,000 AND PRIOR TO THE ARBITRATION BEING FILED WAS WORKING WITH A DIFFERENT ATTORNEY FOR THE CLAIMANTS TO MAKE ARRANGEMENTS FOR FULL PAYMENT. UNEXPECTEDLY, THE CLAIMANTS HAD HIRED A NEW ATTORNEY AND MADE THE DETERMINATION TO PROCEED WITH ARBITRATION. ON 02/03/2012 THE ARBITRATOR AWARDED THE CLAIMANT PRINCIPAL AMOUNT OWED ($37,000) PLUS INTEREST AS CALCULATED BY MR. KARAPETYAN. THIS AMOUNT HAS BEEN PAID IN FULL.