A former broker-dealer executive being sued by Finra claims that the agency is targeting him even after he withdrew his firm's B-D license.
As reported by
InvestmentNews, the Financial Industry Regulatory Authority Inc. on Dec. 3
filed a complaint against Pinnacle Partners Financial Corp. and its president and owner, Brian K. Alfaro. In that document, the regulator alleged that Mr. Alfaro operated a “boiler room” where registered representatives placed thousands of cold calls weekly to solicit investments in his captive oil- and gas-drilling joint ventures. Pinnacle raised over $10 million from more than 100 investors for offerings that Finra alleged “materially misrepresented or omitted facts,” according to its complaint.
On Tuesday, Finra announced that it had suspended Pinnacle and Mr. Alfaro for allegedly continuing to sell fraudulent oil and gas private placements after the agency already put a temporary cease-and-desist order against it.
Pinnacle continued to “market oil and gas offerings through material misrepresentations, with the intent to deceive investors,” Brad Bennett, Finra's executive vice president and chief of enforcement, wrote in statement, released Tuesday.
"Brian Alfaro and Pinnacle pose a serious risk to the investing public,” Mr. Bennett wrote.
But Mr. Alfaro withdrew Pinnacle's broker-dealer license Feb. 24 after spending $700,000 in legal fees related to the investigation, the B-D's owner said.
“How can they suspend us if we aren't a member of Finra?” he asked.
In an interview with
InvestmentNews. Mr. Bennett said the regulator can continue to pursue a firm that has withdrawn its license. “Finra rules allow us to retain jurisdiction for two years for precisely this reason,” he said, “so that someone cannot BDW [withdraw their broker-dealer registration] to avoid sanctions.”
But Mr. Alfaro said his firm isn't marketing securities, as Finra contends. Rather, he is selling private placements “under the watchful eye of the Securities and Exchange Commission,” through his investment company, Alfaro Oil & Gas LLC.
“We are not flying under the radar here,” he said. “The SEC has a copy of every joint venture we do.”
According to Finra's statement, Pinnacle and Mr. Alfaro “deliberately attempted to mislead investors by deleting unfavorable information from well operator reports and providing them with doctored maps, which omitted numerous dry, plugged or abandoned wells near their projected drilling sites.” The complaint also alleges that in one instance, Mr. Alfaro collected more than $500,000 for a well that was never drilled, and used those funds for unrelated personal and business expenses.
Mr. Alfaro denied all of the regulator's claims, adding that “Finra has never proven a single allegation against Pinnacle Partners ever.”
Those allegations were the subject of a hearing on March 8. Mr. Alfaro declined to defend himself, which Mr. Bennett said “resulted in the suspension.”
When asked about this, Mr. Alfaro said his firm had entered into consent with Finra on January 20, mutually agreeing to the cease-and-desist order. He said he went along with the order because he was under the impression that the B-D and Finra could work out the allegations. "But when it became clear that wasn't going to happen,” he explained, “we said ‘We aren't playing this game.'”
A hearing, scheduled for Sept. 12, should prove to be interesting.
