The SEC has imposed $160,000 in civil penalties against Aaron R. Parthemer, a former NFLPA Registered Financial Advisor who defrauded his athlete-clients, caused violations of the record keeping requirements of the Securities Exchange Act of 1934, and effected securities transactions without first becoming registered with the SEC.
Parthemer, a former Registered Rep/IAR of Morgan Stanley Smith Barney (“MSSB”) and Wells Fargo Advisors, LLC (“WFA”), had approximately 40 active or retired professional athletes as brokerage customers and/or investment advisory clients. From 2009 to 2012, Parthemer facilitated client investments of more $5 million in unregistered securities offered by the now defunct branding and marketing company, Global Village Concerns, Inc. (“GVC”). In exchange for introducing his clients to the company, GVC had promised to issue stock options and warrants to a company owned by Parthemer. (Of course, Parthemer never disclosed the conflict of interest to his clients.)
Without informing MSSB or WFA of any of GVC’s offerings, Parthemer independently misrepresented and omitted material information during the initial solicitation of client investments and when providing updates to invested clients regarding the clients’ GVC holdings. For example, Parthemer reported to one advisory client that the return on client’s $200,000 investment would range in the millions. Parthemer later quantified the expected return on investment at 20% before finally listing (in a written report prepared for the client) the value of the investment at $500,000. According to the SEC, Parthemer never conducted any due diligence and never had any reasonable basis for predicting the return or valuing the client’s investment.
In addition to defrauding his clients, Parthemer failed to preserve the business-related communications he made with his brokerage customers over his personal email account and text messaging systems. Parthemer made such broker-dealer related communications with his clients despite MSSB’s and WFA’s instructions not to use personal email for business-related communications. The indiscretion caused violations of Section 17(a)(1) of the Securities Exchange Act of 1934, which requires broker-dealers to preserve all such communications (sent and received) for at least three years.
Besides the provisions referenced above, State and Federal laws provide a veritable litany of rules and regulations with which broker-dealers and investment advisers must comply or face serious penalties. Though some of the rules (such as the Act’s general registration requirement), are more obvious than others, even the most basic features of the regulatory landscape are often complex and difficult to navigate.
If you have any questions regarding your compliance obligations or need any assistance in becoming registered as an Investment Adviser or Broker-dealer, please call us at 888.302.4594 or email us and we will be happy to assist.
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