A Finra hearing panel has expelled Red River Securities, a Plano, Texas-based broker-dealer, and barred its CEO Brian Keith Hardwick for fraudulent sales in five oil and gas joint ventures, characterizing the misconduct of both as “egregious.”
The panel ordered the firm and Mr. Hardwick to pay $24.6 million in restitution to customers, the Financial Industry Regulatory Authority said in its
disciplinary hearing document.
One customer was a 74-year-old, self-employed farmer and dog breeder with a net worth of $2 million, liquidity of $20,000, and $150,000 in annual income. Given her level of liquidity and her self-employed/seasonal employment situation, the hearing panel found that her investment of $94,754, representing well over half of her annual income, in three risky oil and gas ventures in a period of a year, was not suitable.
According to the panel, the respondents engaged in a pattern of misrepresentations and omissions that spanned nearly four years and involved sales in the risky joint ventures.
But the panel dismissed allegations by Finra's Department of Enforcement that the firm sold interests in two of the joint venture offerings in violation of the general solicitation prohibition for the private placement of securities under Regulation D. It also dismissed one alleged misrepresentation charge, several alleged suitability violations by the firm, and additional suitability allegations against Hardwick. The decision resolves charges brought by the department in July 2015.
The oil and gas offerings, which the panel noted were already high-risk ventures, misrepresented the amount of income distributed to investors in other Regal Entity joint ventures, failed to disclose material conflicts of interest, and failed to disclose that one of the wells was a "wildcat," which carried risk in addition to the usual risks of oil and gas joint ventures.
In addition, Red River Securities and Hardwick omitted material information about the sizable management fees that would be paid to the affiliated entity and failed to disclose Hardwick's participation in drafting an independent geologist's report, according to Finra's release.
Finra said that unless the hearing panel's decision is appealed to its National Adjudicatory Council , or is called for review by the NAC, the decision becomes final after 45 days.
