FINRA

Reyes was named a respondent in a FINRA complaint alleging that he made fraudulent misrepresentations and omissions of material fact in connection with the sale of unregistered Regulation D securities issued by companies affiliated with his member firm and thereby willfully violated Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 and violated FINRA Rules 2020. The complaint alleges that Reyes represented that the investments were safe, when they were not. Reyes also failed to disclose that the offerings by two of the companies were self-offerings primarily intended to fund the failing firm and its parent company. Due to Reyes's actions, 18 of the firm's customers lost all of the money they invested in the offerings, totaling about $4,219,000, and did not receive all of the interest that was due to them pursuant to promissory notes issued in connection with the offerings. Reyes acted knowingly and/or recklessly in making the misrepresentations and omissions. In the alternative, Reyes acted in contravention of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 by negligently engaging in fraudulent conduct in connection with the offerings and in making the misrepresentations. The complaint also alleges that Reyes made improper use of and converted funds totaling $170,000. Reyes falsely represented to an investor, who had opened an account at the firm in the name of his company, that he would use the investor's funds to set up an offshore investment fund and fund the firm's completion of an offshore investment banking transaction. Based on Reyes's misrepresentations and instructions, the investor and his company transferred money to an account controlled by Reyes. Rather than using the funds as promised, Reyes used the funds for his own personal expenses. Reyes never returned the funds to the investor and his company, customers of the firm. Reyes falsely told the customer that he would use $20,000 to pay the retainer of a lawyer in setting up an incubator fund and that he would use $150,000 to pay the expenses required, so that the firm could close the deal. The complaint further alleges that Reyes did not perform adequate due diligence in connection with the offerings and therefore did not have a reasonable basis to believe that the securities he recommended as part of the offerings were suitable for any customers. In addition, the complaint alleges that Reyes made unsuitable recommendations to a customer. Reyes recommended that this customer invest a total of $1,452,000 in the unregistered, illiquid, risky offerings. The customer was a divorced homemaker with two dependent children whose objective was safe, stable income and capital preservation. Reyes failed to satisfy his customer-specific suitability obligations and recommended transactions to her without considering her financial situation and needs. Moreover, the complaint alleges that Reyes created and provided to customers and potential customers marketing material for the offerings that contained misrepresentations, omitted material risks, and did not form a sound basis for evaluating the investments.

Decision

Bar (Permanent)

All Capacities

Indefinite

10/7/2021

Monetary Penalty other than Fines

$14,226.97

$1,600.31

Restitution

$4,009,000.00

Extended Hearing Panel Decision rendered December 17, 2019, wherein Reyes was barred from association with any FINRA member in all capacities and ordered to pay $4,009,000, plus interest, in restitution to customers. In addition, Reyes was ordered to pay $14,226.97 in costs. The sanctions were based on findings that Reyes willfully defrauded investors in connection with nearly $4 million in investments in private placement offerings, converted $170,000 from a customer, and recommended unsuitable investments and used misleading marketing materials. The findings stated that Reyes willfully violated Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5, and violated FINRA Rule 2020 by making multiple false and misleading statements and material omissions to investors related to the use of their funds and the risks associated with the sale of private placement investment. The investment was offered through Reyes's member firm, and his customers ultimately sustained nearly $4 million in losses from their investments. By obtaining salary, bonuses, and commissions through funds raised in each of the offerings, Reyes obtained money or property through his fraud. Reyes's conduct also amounted to a practice or course of business that operated as a fraud or deceit upon the purchaser, thus violating Sections 17(a)(2) and (a)(3) of the Securities Act of 1933, in the alternative. The findings also stated that Reyes misappropriated money he received from a customer for investment purposes, converted the money, and obtained the funds by means of misrepresentations. The findings also included that Reyes lacked an adequate basis for his recommendations of the private placement investments to a customer. Reyes failed to take into account the particular circumstances of the customer in recommending that she invest in each of the private placements. Reyes's recommendations were unsuitable. Moreover, the customer could not understand the investment documents, which were written in English, so she relied on Reyes to explain the particulars of her investments and their risk levels. The customer was a native Spanish speaker who spoke little English. FINRA found that PowerPoint presentations that Reyes used to market the offerings were misleading because they failed to disclose the speculative and illiquid nature of the investments, falsely represented to investors that the investments were secured, and deceptively stated that the investments were endorsed by the SEC, SIPC, and FINRA. On January 10, 2020, Reyes appealed the OHO decision to the NAC. NAC decision rendered October 7, 2021 wherein the findings made are affirmed, in part, and the sanctions imposed by the Hearing Panel are modified. The NAC declined to find that Reyes violated reasonable-basis suitability requirements when he recommended that customers purchase the private placements. The NAC affirmed the Extended Hearing Panel's order that Reyes pay restitution totaling $4,009,000 and hearing costs of $14,226.97, and it imposed appeal costs of $1,600.31. The NAC also imposed a bar in which Reyes was barred from association with any FINRA member in all capacities. The decision is final on November 9, 2021.

The customer stated that the broker indicated that the investment was not a promissory note but rather an investment that she would have access to at anytime. The client is now claiming payment of the amount of the promissory notes plus default interest and attorney fees. Barth, LLC has now filed suit against the broker and others for compensatory and special damages, costs, interest, attorney fees and other relief the court deem appropriate for the perceived losses in the investments made in 2013, 2014 and 2015.

$1,452,000.00

By letter dated August 25th, 2016, the Firm received a customer complaint from the Attorney of Barth, LLC. Barth is a Florida company, incorporated on September 9, 2014 and managed by [Third Party]. The attorney claimed that [Third Party] was induced to invest in promissory notes issued by CP US Income Group, CP Venture Capital I and CP Venture Capital II under Regulation D Private Placement offerings. The aggregate amount of these notes was $ 1,452,000 consisting of $500,000 CP US Income Group; $800,000 CP Venture Capital I; and $152,000 CP Venture Capital II. The attorney stated that the broker indicated to [Third Party] that the instrument was not a promissory note but rather an investment that she would have access to at anytime. The client is now claiming payment of the amount of the promissory notes plus default interest and attorney fees. The firm's record indicates the broker provided the customer the required PPM and obtained the other private placement required forms including an accredited investor status form. Further, the firm's record includes a brokerage account application with information on her investment objective (speculation), risk tolerance (aggressive), time horizon (intermediate) and other customer-related information. On September 2nd, 2016, the client's attorney indicated to the firm's attorney their readiness to resolve the matter.