The Securities Arbitration Law Firm of KlaymanToskes announced today that it is investigating the sale of PERF Go-Green securities by vFinance Investments, Inc. Earlier this year, vFinance was censured and fined $65,000 by FINRA for violating Rule 101 of Securities Exchange Act Regulation M by soliciting purchases of an issuer’s stock by customers in the open market while vFinance was participating in a distribution of convertible debt on behalf of that issuer. In addition, the firm violated NASD Rule 3010(a) by failing to reasonably supervise the purchases of the stock during the distribution, and failed to disclose under NASD Rule 3070(a)(9) that it was engaged in business activities with a person who had been statutorily disqualified.
According to FINRA, in the spring of 2008, vFinance acted as the private placement agent for a placement of up to $5 million in convertible notes issued by a company called PERF Go-Green Holdings, Inc. (PGOG). Between April 22, 2008 and June 10, 2008, 21 investors (19 of whom were vFinance’s customers) invested a total of $5,950,000 in the private
placement. The issuer was on the firm’s restricted list for the duration of its participation in the offering. Notwithstanding this, 22 customers of two representatives in vFinance’s New York office bought 255,300 shares of common stock of PGOG through accounts at vFinance during the restricted period. A number of the customers were solicited to buy the stock of PGOG while the firm was conducting the private placement described above.
Rule 101(a) of Regulation M, promulgated pursuant to Section 10(b) of the Securities Exchange Act of 1934, prohibits participants in a distribution from inducing or attempting to induce customers to purchase certain securities during the course of the distribution. Regulation M is designed to prevent manipulative activities by persons with an interest in the outcome of an offering and prohibits activities and conduct that could artificially influence the market for an offered security. By virtue of the conduct described above, vFinance violated Regulation M, and thereby also violated NASD Rule 2110 (now FINRA Rule 2010).
FINRA also found that vFinance did not adequately supervise the purchases of stocks on the restricted list. The firm’s procedures required it to monitor purchases of securities of issuers on its restricted list, including those for which it was conducting offerings. The firm failed to enforce those procedures adequately and instead authorized purchases of PGOG by customers without conducting an adequate inquiry into the facts and circumstances surrounding those purchases. Therefore, the firm failed to reasonably supervise activity in PGOG’s stock in a manner reasonably designed to achieve compliance with Regulation M. vFinance thus violated NASD Rule 3010(a), and thereby also violated
NASD Rule 2110 (now FINRA Rule 2010).
Finally, FINRA found that vFinance failed to disclose its involvement of a statutorily disqualified person in connection with the sale of the PERF Notes. FINRA said that an individual who had been subject to a statutory disqualification worked closely with employees of vFinance in connection with the private placement, communicating directly with vFinance’s investment banking department and others. The individual was statutorily disqualified as a result of a bar from association with any broker/dealer, imposed in 2002. NASD Conduct Rule 3070(a) (now FINRA Rule 4530) required during the relevant period that “Each member shall promptly report to the Association whenever such member or person associated with the member: .. .(9) is associated in any business or financial activity with any person who is subject to a ‘statutory disqualification’ as that term is defined in the Act, and the member knows or should have known of the association. The report shall include the name of the person subject to the statutory disqualification and details concerning the disqualification….” Subsection (b) further required the member to make such a report within 10 business days of learning of a condition set forth in subsection (a). vFinance never filed a report, as required by the provision, disclosing its business activities with this individual. By virtue of that failure, vFinance violated NASD Conduct Rule 3070(a), and thereby also violated NASD Rule 2110 (now FINRA Rule 2010).
If you invested in PERF Go-Green securities through vFinance and have information relating to this investigation, contact KlaymanToskes, toll free, at 888-997-9956.