NOTE: Stipulations of Fact and Consent to Penalty (SFC); Offers of Settlement (OS); and Letters of Acceptance Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions & to the entry of findings. Additionally, for AWCs, if FINRA has reason to believe a violation has occurred and the member or associated person does not dispute the violation, FINRA may prepare and request that the member or associated person execute a letter accepting a finding of violation, consenting to the imposition of sanctions, and agreeing to waive such member's or associated person's right to a hearing before a hearing panel, and any right of appeal to the National Adjudicatory Council, the SEC, and the courts, or to otherwise challenge the validity of the letter, if the letter is accepted. The letter shall describe the act or practice engaged in or omitted, the rule, regulation, or statutory provision violated, and the sanction or sanctions to be imposed.

David Allen Naefke
AWC/2009016728501

Naefke circumvented his member firm’s guidelines regarding investing in illiquid investments by submitting documents, including illiquid investment letters and account information forms, that falsified and exaggerated customers’ net worth which in turn permitted investments in amounts that the firm would have otherwise prohibited and that were unsuitable for the affected customers.

The firm had internal guidelines that limited the amounts customers were permitted to invest in illiquid investments; the internal policy further stated that illiquid investments for older investors required additional review and consideration pertaining to their needs for liquidity and income. Naefke submitted documents that knowingly falsified customers’ net worth, causing his firm’s books and record to be inaccurate and customers to invest in illiquid investments in amounts that his firm would have otherwise prohibited; and Naefke impeded his firm’s ability to adequately supervise the suitability of his recommendations.

On three illiquid investment letters, Naefke falsely stated that a

• 50-year-old customer’s adjusted net worth was $2,000,000, when in fact it was about $150,000;

O at least two account information forms, Naefke falsely stated that an

• 87-year-old customer’s net worth was between $1,000,000 and $2,999,999, when, in fact, it was approximately $250,000; and

O four illiquid investment letters, Naefke falsely stated that the

• 87-year-old customer’s adjusted net worth was $1,000,100.

Naefke recommended and sold illiquid investment interests in publicly registered non-traded real estate investment trusts (REITs), direct participation programs and a limited partnership to customers totaling about $299,000. When Naefke made the recommendations and sales, he did not have reasonable grounds for believing that the recommendations were suitable based on each customer’s other security holdings, financial situation and needs.

David Allen Naefke: Barred

Tags: REIT  Elderly