A PEEK BEHIND A SELLING AWAY AWARD: FRY v. COMPREHENSIVE ASSET MANAGEMENT AND SERVICING INC. & STEELE, FINRA ID #17-01767 (Indianapolis, IN, 8/10/18).
This Award is interesting both because it involves a selling away case and because it resulted in the rescission of the investments in question. Although, like most FINRA Awards, it contains only a brief description of the allegations and no findings of fact, we were fortunate enough to obtain the pleadings of the major characters in the case and can therefore shine further light on the underlying story.
Those pleadings are the Statement of Claim filed by the two complaining customers, Denise M. Fry (“Fry”) and Donna Sullivan (“Sullivan”) and the Answer of the accused broker and investment advisor, Tamara Rae Steele (“Steele”), who was registered with FINRA member and co-respondent Comprehensive Asset Management and Servicing Inc. (“Comprehensive,” which claimants voluntarily dismissed and whose pleadings we did not obtain). And unlike most of our “peek behind” features, which tend to tell two very different stories, this one shares a core narrative, so instead of our normal “he said, she said” format, we first relate the agreed elements, and then point out where the two versions differ.
Where the Stories Agree
Fry and Sullivan knew Steele from playing tennis together. Steele told many of her family and friends, including Fry and Sullivan, about BRS Labs, Inc., a non-publicly traded company whose cutting-edge technology, Steele asserted, created a potential for significant investor returns. After introducing them to BRS as a possible investment, Steele helped Fry and Sullivan, among others, to invest in BRS promissory notes. Fry purchased a total of $75,000 in 2014 and 2015 and Sullivan purchased $100,000 in 2016. Fry also claims to have purchased $46,700 in BRS stock, although Steele is unaware of whether she did. Steele received stock warrants from BRS whenever any investors she introduced to the company invested. BRS became delinquent in paying interest and dividends and it was eventually revealed one or more company principals misappropriated significant amounts of cash from the company to their own use.
Fry and Steele both claim that Steele recommend that they invest in BRS promissory notes, touting it as a safe investment which would earn 12% per year in interest and a guaranteed return of principal, but without disclosing the compensation she received from BRS for securing investors. By 2016, Fry refused to invest any more funds into the company, even though Steele continued to recommend that she do so. Fry earned back only $35,082.19 in interest and dividends, leaving her with an out-of-pocket loss of $186,617.81. Sullivan earned back only $6,591.78, leaving her with a loss of $93,408.22. The promissory notes and stock are now worthless.
Steele admits that she provided free investment advice to Fry and Sullivan, but denies recommending BRS to them, claiming that the two of them made unsolicited requests to invest. Both Steele and the BRS subscription materials warned investors that BRS was a greater than normal investment risk and could result in the loss of one’s entire investment. Nevertheless, she believes that the notes and stock here may be valuable enough to permit Fry and Sullivan to recover the rest of their investment. The subscription materials also advised that BRS “may pay broker’s, finder’s or similar fees in connection with” the investments.
At the close of the hearing, Fry reduced her damage request to $117,000 and Sullivan to $55,408. The Panel awarded Fry $111,700 and Sullivan $55,408 in compensatory damages, plus interest. $58,000 in attorney fees and $750 in costs. It also ordered Fry and Sullivan to transfer all of their interests in BRS to Steele upon the satisfaction of their respective awards, thereby rescinding the investments.
(ed: *Mark E. Maddox and Thomas K. Hartley of Maddox, Hargett & Caruso, P.C., based in Fishers, IN, represented the successful claimants. **We surveyed a number of individual selling away Awards in SAA 2015-28 (Jul. 29).) (SAC Ref. No. 2018-32-05)
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