Initiated By
FINRA
Allegations
Eckstein was named a respondent in a FINRA complaint alleging that he sold over $1.3 million of "investments" that were neither described in any written materials nor memorialized in a note or other agreement. The complaint alleges that these undocumented investments appear to have been part of a spurious investment scheme run by a close friend of Eckstein. Having done no due diligence on the issuer, Eckstein nevertheless recommended that at least four customers - including elderly, conservative investors - invest based on repayment terms, including maturity dates and interest payments, which he orally provided to them. Eckstein recommended that the customers make investments in the issuer without disclosing to them that he did not have a reasonable basis for making such recommendations and that he knew or was reckless in not knowing that the issuer lacked the ability to repay its obligations to these investors. In the course of making these recommendations, Eckstein made material misrepresentations and omissions to customers. Eckstein also failed to inform investors that he had signature authority on the bank account of an affiliate of the issuer that was receiving investor funds - in other words, that he could access the funds the investors were purportedly investing. Eckstein further failed to disclose that he had received over $100,000 from his long-time friend and CEO of the issuer. Eckstein's misrepresentations and omissions were material because a reasonable investor would consider them important in making investment decisions because they significantly altered the total mix of information available to the customers, and because they denied them the opportunity to make an informed decision about whether to invest in the issuer. As a result of his conduct, Eckstein willfully violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and violated FINRA Rule 2020. The complaint also alleges that Eckstein's recommendations were unsuitable because Eckstein, among other things, lacked a reasonable basis to believe the investments were suitable for any investor and did not understand the potential risks and rewards inherent in the recommendation. The complaint further alleges that prior to forming his own shop in September 2015, Eckstein participated in private securities transactions when the customers invested in the issuer. Each of the transactions was done away from Eckstein's member firm and was outside the regular course or scope of his employment with the firm. Eckstein failed to seek written authorization from or provide written notice to the firm prior to participating in the transactions. The firm's written supervisory procedures prohibited "selling away." In addition, the complaint alleges that Eckstein caused a different member firm to violate Securities Exchange Act of 1934 Rule 17a-4 and FINRA Rules 2010 and 4511 by failing to preserve customer emails, text messages, and facsimiles, and account summaries he created for and sent to individuals. Furthermore, the complaint alleges that after FINRA commenced its investigation, Eckstein failed to respond to requests for document and information and in other instances, failed to completely or timely respond.
Resolution
Decision
Bar
Bar (Permanent)
Registration Capacities Affected
All capacities
Duration
Indefinite
Start Date
9/25/2018
Sanctions
Restitution
Amount
$961,781.00
Sanctions
Respondent willfully violated of Section 10(b) of the Exchange Act of 1934, and Rule 10b-5, as well as FINRA Rules 2020 and 2010.
Regulator Statement
Default decision rendered August 28, 2018. The sanctions were based on findings that Eckstein made false and misleading statements in connection with purchases and sales of securities in willful violation of Section 10(b) of the Exchange Act of 1934, and Rule 10b-5, as well as FINRA Rules 2020 and 2010. The findings stated that in reliance on Eckstein's recommendations, four customers invested a total of $1.36 million in a company (the "Issuer") run by one of his close friends. Eckstein gave the customers no written materials describing the investment or any note or other agreement memorializing the customers' purchases. Rather, the undocumented transactions appear to have been part of a spurious investment scheme run by Eckstein's close friend. Eckstein also persuaded one of his customers to liquidate close to $300,000 in mutual fund holdings in order to invest in the issuer, representing that the investment would be sufficient to fund her retirement while the mutual fund investments would not. Eckstein had no basis, however, for urging the customer to replace her mutual funds with an investment in the issuer. Eckstein had conducted no due diligence on the investment. Moreover, Eckstein never disclosed to his customers his lack of a basis for his representations and recommendations, and his lack of due diligence-material information to any reasonable investor. Eckstein did not disclose that nearly all of the money that his customers gave him to invest in the issuer was deposited into a bank account in the name of an affiliate of the issuer, and that he had access to those investor funds as a signatory on the bank account. Eckstein also did not disclose that his friend had given him over $100,000, purportedly as a loan that the friend then forgave. The findings also stated that Eckstein had no reasonable basis for thinking the investment in his friend's company suitable for anyone. In addition, given the customers' circumstances-they all had little to no investment experience and had highly conservative investment objectives and risk tolerance-the investment was unsuitable for these customers in particular. The findings also included that Eckstein participated in many of these private securities transactions or "selling away" from his member firm without providing the required prior written notice to which it was entitled. FINRA found that after Eckstein left the firm and started his own broker-dealer firm, he caused his broker-dealer firm to violate the applicable books and records rules by failing to preserve customer emails, text messages, facsimiles, and account summaries that he created for and sent to some customers. FINRA also found that during FINRA's investigation, Eckstein failed to respond timely and completely to one request, failed to respond timely to two subsequent requests, and then failed to provide any information at all in response to two more requests by FINRA. The decision became final September 25, 2018.
