Initiated By
FINRA
Allegations
Kenley Brisard was named a respondent in a FINRA complaint alleging that he, another representative and their firm sold an unregistered security, and its designated supervisor failed to supervise the activities that consisted of interest-only strips from loans issued by the United States Small Business Association (SBA) meant only for Qualified Institutional Buyers (QIBs) to individual retail investors at undisclosed markups of 14-33 percent using general solicitation emails that fraudulently misrepresented the product and the respondents' role in its development. The complaint alleges that Kenley Brisard and the other representative willfully violated Section 10(b) of the Exchange Act of 1934 and Rule 10b-5 thereunder when they engaged in fraudulent misrepresentations and omissions of material fact in connection with customer purchases of securities with respect to the emails that Kenley Brisard sent to four customers and the other representative sent to one customer. Or in the alternative, negligently made material misstatements in violation of FINRA Rule 2010, by violating Sections 17(a)(2) and (3) of the Securities Act of 1933. The misrepresentations and omissions in the respondents' statements to customers were material because a reasonable investor would consider them important in making investment decisions, because they significantly altered the total mix of information made available to the solicited customers, and because they denied the investors the opportunity to make an informed decision about whether to invest in the SBA interest-only security. The complaint also alleges that Kenley Brisard and the representative, in connection with offers of the SBA interest-only security, send false and fraudulent emails containing similar misrepresentations and omissions to additional customers and prospects, and failed to comply with Section 17(a)(1) of the Securities Act of 1933, or in the alternative, negligently made material misstatements in the general solicitation emails in violation of FINRA Rule 2010, by failing to comply with Sections 17(a)(2) and (3) of the Securities Act of 1933. The respondents acted with scienter because they made their statements to potential investors with no regard for their truth or falsity and for whether the statements omitted material facts. They knowingly, willfully and/or recklessly ignored and/or contradicted the PPM for the SBA interest-only security to which they had ready access, and they made statements that had no underlying factual basis. The respondents failed to reasonably and/or independently investigate and understand the SBA interest-only security before they recommended the investment to customers. They failed to reasonably consider the information contained in the PPM. The complaint further alleges that the firm charged excessive markups of 14-33 percent on customers' unregistered securities transactions. Specifically, the firm charged excessive markups between 14-33 percent of the relevant market price on trades, well in excess of the 5 percent markup permitted by policy. Nothing in the nature of the firm's or Brisard's business or the identified purchases of the SBA interest-only security justified the size of the markups on the purchases by the firm's customers. In addition, the complaint alleges that Kenley Brisard, the representative, and the firm marketed and sold the unregistered securities through general solicitation without an exemption, and thereby failed to comply with Section 5 of the Securities Act of 1933, which prohibits the offer or sale of unregistered securities through the instrumentalities of interstate commerce. At no time did either the firm or Kenley Brisard attempt to determine whether any of the investors to whom they sold the SBA interest-only security were QIBs.
Resolution
Decision & Order of Offer of Settlement
Bar
Bar (Permanent)
Registration Capacities Affected
All Capacities
Duration
Indefinite
Start Date
10/27/2016
Regulator Statement
Without admitting or denying the allegations, Brisard consented to the sanction and to the entry of findings that he willfully violated Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 promulgated thereunder, and FINRA Rules 2020 and 2010, by inducing customers to purchase an interest-only unregistered security with materially false representations. The findings stated that Brisard, and another registered representative, sold the unregistered security that consisted of interest-only strips from loans issued by the United States Small Business Association (SBA) meant only for Qualified Institutional Buyers (QIBs), using general solicitation emails that materially misrepresented the product and Brisard's role in its development. The misrepresentations and omissions in the statements that Brisard and the representative made to the customers were material because a reasonable investor would consider them important in making investment decisions, because they significantly altered the total mix of information made available to the solicited customers, and because they denied the investors the opportunity to make an informed decision about whether to invest in the SBA interest-only security. The findings also stated that Brisard and the representative, in connection with offers of the SBA interest-only security, send false and fraudulent emails containing similar misrepresentations and omissions to additional customers and prospects. Brisard acted with scienter because he made his statements to potential investors with no regard for their truth or falsity and for whether the statements omitted material facts. He knowingly, willfully and/or recklessly ignored and/or contradicted the private placement memorandum (PPM) for the SBA interest-only security to which he had ready access, and he made statements that had no underlying factual basis. The findings also included that Brisard willfully violated Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 promulgated thereunder, and FINRA Rules 2020 and 2010, by marketing and selling the SBA Interest-Only Security through the instrumentalities of interstate commerce. The offers to sell were by email and telephone, and the sales were communicated interstate through email, telephone and fax communications. The security was not exempt from the registration requirements of Section 5 of the Securities Act of 1933, which prohibits the offer or sale of unregistered securities. At no time did Brisard and the representative attempt to determine whether any of the investors to whom they sold the SBA interest-only security were QIBs.
