Securities Lawyers Blog
The Financial Industry Regulatory Authority (FINRA) sanctioned and suspended for two year broker Walter Chao (Chao) (FINRA No. 2012034046301) alleging that between February and May 2012, while registered with LPL Financial LLC (LPL Financial), Chao participated in nine private securities transactions totaling $1.27 million without LPL’s approval. According to FINRA, Chao attempted to conceal his participation in the private securities transactions by using an unapproved email address and providing false and misleading answers in a compliance questionnaire. In addition, FINRA claimed that Chao also provided false and misleading statements to FINRA regarding his involvement in the private securities transactions. In addition, FINRA found that Chao was also a branch manager and failed to adequately supervise certain conduct such as being aware that staff under his supervision were using blank signed forms and unapproved email addresses.
Chao entered the securities industry in June 2003. In August 2007, Chao joined LPL Financial. LPL Financial terminated Chao’s registration in September 2012 for violating firm policies and procedures relative to participation in private securities transactions away from the firm without firm authorization. From October 2012 to January 2015, Chao was registered with Purshe Kaplan Sterling Investments.
FINRA alleged that in late 2011, Chao learned that a firm had created a special purpose vehicle (SPV) to purchase pre-initial public offering (IPO) shares of Facebook. By using the SPV investors could purchase ownership interests in the SPV in order to participate in the Facebook IPO. FINRA found that Chao wanted to solicit his customers to purchase interests in the Facebook SPV but knew that he was required to get approval from LPL Financial before doing so. Chao requested approval but LPL Financial denied his request.
Despite the denial, between February and May 2012, FINRA found that Chao introduced at least 13 clients to purchase interests in a Facebook SPV. Nine of those clients invested a total of $1.27 million in the Facebook SPVs. FINRA found that although Chao did not receive any direct compensation from his customers’ transactions the SPV waived approximately $8,000 in fees associated with Chao’s mother’s purchase in a Facebook SPV. In addition, FINRA found that Chao remained involved with his clients’ Facebook SPV investments by directing them to Chao’s attorney for legal advice, answering customers’ questions regarding their Facebook SPV investments, and contacting the SPV on the customers’ behalf.
FINRA found that Chao took steps to conceal his participation in the private securities transactions from LPL Financial by using an unapproved email address for communications related to his customers’ transactions, providing false and misleading answers in an LPL Financial compliance questionnaire, and by failing to disclose his use of an unapproved email address.
Investors who have suffered investment losses due to private securities transactions may be able recover their losses through securities arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors concerning securities violations. Our consultations are free of charge and the firm is only compensated if you recover.