FINRA

Kumar was named a respondent in a FINRA complaint alleging that he engaged in unethical business conduct by making material misrepresentations to a participant in his undisclosed outside business activity (OBA). The complaint alleges that Kumar operated an undisclosed OBA where he directly received hundreds of thousands of dollars from proprietary traders (participants) pursuant to verbal and written agreements in which Kumar promised to train the participants to pass the Series 57 examination, teach them to trade securities as part of his purported team at his member firm, and double the value of their initial trading deposit with the firm. One participant entered into an agreement with Kumar and made a $50,000 deposit into a contingency fund. After failing the Series 57 exam twice, the participant told Kumar that he wanted to discontinue the program and asked Kumar for a refund. Under the terms of the participant's agreement with Kumar, Kumar was obligated to return $48,000 of the $50,000 to the participant within three months of his request to discontinue the training program. However, Kumar falsely and misleadingly stated to the participant that the firm held $100 million of Kumar's money and that Kumar could not repay the participant his $48,000 contingency fund deposit until the firm released Kumar's funds. In fact, at the time Kumar made those verbal representations, Kumar knew he had less than $2,500 with the firm. Kumar knew he previously spent the participant's contingency fund deposit on personal expenses and to repay a purported loan; he knew he had no other liquid assets with which to repay the participant. The complaint also alleges that Kumar neither notified the firm, verbally or in writing, that he intended to conduct his OBA, nor did he receive prior approval from the firm. The complaint further alleges that Kumar participated in undisclosed private securities transactions. Kumar placed private securities transactions in brokerage accounts of two participants in his OBA at two separate broker-dealers outside of the regular course or scope of his employment with the firm. Kumar did not provide written notice to the firm before participating in these private securities transactions. In addition, the complaint alleges that Kumar falsely attested that he did not conduct an outside business, did not engage in unapproved methods of electronic communications, and did not engage in private securities transactions. At the time of his attestation, however, Kumar was engaging in his OBA and participating in private securities transactions, as well as communicating with participants via an unapproved method of electronic communication. Moreover, the complaint alleges that Kumar failed to respond to requests for information during on-the-record testimony that was material to FINRA's investigation. Kumar refused to answer certain questions regarding deals he claimed to have entered into that, according to Kumar, impacted his ability to repay participants. Furthermore, the complaint alleges that Kumar provided false, misleading, and incomplete information to FINRA regarding the number of agreements he entered with participants, copies of those agreements, and the institutions at which he had bank accounts. The complaint also alleges that Kumar failed to provide FINRA with electronic communications they requested and also provided false statements regarding the same communications. Kumar also deleted the electronic communications that FINRA had requested. The complaint further alleges that Kumar failed to timely provide information and documents requested by FINRA regarding an overseas bank account he controlled.

Decision & Order of Offer of Settlement

Bar (Permanent)

All capacities

Indefinite

5/23/2022

Without admitting or denying the allegations, Kumar consented to the sanction and to the entry of findings that he made material misrepresentations to a participant about why he could not repay him his money. The findings stated that Kumar operated an undisclosed OBA where he directly received hundreds of thousands of dollars from proprietary traders pursuant to verbal and written agreements in which Kumar promised to train the participants to pass the Series 57 examination, teach them to trade securities as part of his purported team at his member firm and double the value of their initial trading deposit with the firm. Pursuant to these agreements, participants had to make an initial deposit into a contingency fund while Kumar trained them for the exam. If the participants wanted to discontinue the program before passing the exam, they were entitled to a refund of a substantial portion of their contingency fund deposit within three months. The participant requested Kumar return his contingency fund deposit after he took and failed the exam and decided not to continue in Kumar's training program. Kumar was obligated to, but did not, repay the participant his $48,000 contingency fund deposit. Therefore, the participant inquired when Kumar would return his funds. Kumar falsely and misleadingly stated to the participant that the firm held $100 million of Kumar's money and that Kumar could not repay the participant his contingency fund deposit until the firm released Kumar's funds. In fact, at the time Kumar made those verbal representations, he knew he had less than $2,500 with the firm. Kumar knew he previously spent the participant's contingency fund deposit on personal expenses and to repay a purported loan and that he had no other liquid assets with which to repay the participant. The findings also stated that Kumar failed to disclose his OBA to his firm. Although Kumar's OBA began years before he registered with FINRA, he continued to engage in the same OBA while he was registered with FINRA through his association with the firm. The findings also included that Kumar failed to disclose to his firm that he effected about 100 private securities transactions in brokerage accounts that the participant and another participant held away from the firm. FINRA found that Kumar submitted a false attestation to his firm. Kumar falsely attested that he did not conduct an outside business, did not engage in unapproved methods of electronic communications, and did not engage in private securities transactions. FINRA also found that during his on-the record testimony, Kumar refused to answer certain questions regarding deals he claimed to have entered into that, according to him, impacted his ability to repay participants. In addition, FINRA determined that in response to FINRA's written requests for information and documents, Kumar provided false, misleading, and incomplete written responses regarding the number of agreements he entered with participants, copies of those agreements, and the institutions at which he had bank accounts. Moreover, FINRA found that in response to its requests for information and documents, Kumar failed to provide FINRA with electronic communications it requested and provided false statements regarding the same communications. Kumar also deleted the electronic communications that FINRA had requested. Furthermore, FINRA found that in response to its request for information and documents, Kumar failed to identify an overseas bank account he controlled until more than nine months after FINRA originally requested the information. Furthermore, Kumar failed to provide copies of statements for the overseas bank account until about ten months after FINRA originally requested them.