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Enforcement Actions
Financial Industry Regulatory Authority (FINRA)
CASES OF NOTE
2011
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.
December 2011
Eric Lawrence Bloom (Principal)
AWC/2009016157801/December 2011
Bloom made materialmisrepresentations and omissions of fact and unwarranted, exaggerated and misleadingstatements to investors in connection with the sale of private placement offerings. 

Bloom misrepresented in an offering’s subscription agreement thatthe use of proceeds for the offering was initial funding of the company’s ventures in technology risk management solutions and business development of services. The proceeds were actually used to purchase shares of a stock from an individual. Bloom did not disclose the stock purchasing agreement between the company and the individual that predated the offering and failed to disclose the conflicts of interest and control relationships that existed among the company and his member firm’s outside counsel. Bloom failed to disclose that the firm’s outside counsel, who prepared all the offering documents,had created the company to operate out of his residential address and that the outside counsel’s relatives actually owned and operated the company. 

In another offering, Bloom misrepresented the offering in the PPM as an investment in membership interests of a company but did not disclose to investors that there was a promissory note between his firm’s CEO and the company’s owner, and that $400,000 was due pursuant to the note. Bloom failed to disclose to investors that $400,000 of investors’funds had already been paid to satisfy the note and that $352,200 of investor funds from the offering had already been paid by check to pay back the promissory notes from the offering. Until a supplement to the offering memorandum, Bloom failed to disclose to investors the profit distribution from the offering and further failed to disclose the conflicts of interest and control relationships among the offering company, the company thatcontrolled the offering company, and the firm’s outside counsel and counsel’s family. 

For two other offerings, Bloom failed to disclose to investors in the subscription agreements of both companies the significant regulatory history ofthe controlling partners of the offerings who had been charged by FINRA in a market manipulation scheme in connection with alleges sales of over $3.5 million of stock to firm customers. 

Bloom’s firm’s counsel prepared the offering documents in consultation with Bloom. Bloom relied to his detriment on the counsel’s advice about which facts needed to be disclosed and which could be omitted in the offering documents. Bloom was the principal at the firm responsible for supervising all aspects of the firm’s business, including ensuring compliance with FINRA’s rules regarding communications with the public. Bloom’s firm acted as the sole placement agent for an additional private placement, and the offering memorandum was not fair and balanced regarding the potential investment returns of the partnership. The offering memorandumutilized past performance of the Average of Top 25 S&P 500 Fund as compared to the anticipated returns of investing in the offering. 

Bloom’s firm participated in best efforts, minimum-maximum offerings conducted by companies, andinstead of having investors deposit their funds into a bank escrow account as required by SEC Rule 15c2-4, the offering documents set forth that an escrow account with a transferagent would be established for investor funds during the contingency period, causing thefirm to violate Section 15(c) of the Securities Exchange Act of 1934 and SEC Rule 15c2-4.
Eric Lawrence Bloom (Principal): Barred
Steven Mark Peaslee (Principal)
OS/2009020134201/December 2011
Peaslee participated in private securities transactions by soliciting individuals to invest approximately $399,850 in an offering of a company he owned and controlled without providing written notice of his intent to participate in the sale of an offering to his member firm, and failed to obtain his firm’s written approval before engaging in such activities.Peaslee’s firm did not permit registered representatives to participate in the sale of private equity offerings. The offering’s purpose was to capitalize an entity through which Peaslee operated his securities business, which he wholly owned.The offering purported to be issued in compliance with Rule 506 of Regulation D of the Securities Act of 1933 (Reg. D), but Reg D documents were not filed with the SEC. 

Peaslee did not receive any written representation from any of the investors that they met the requirements to be an accredited investor. FINRA found that Peaslee negligently made untrue statements of material facts and/or omitted to state material facts in a PPM and subscription agreement for the offering. In reliance on Peaslee’s misrepresentations, the customers and the non-customer invested in the offering.

Peaslee failed to establish an escrow account in the name of the issuer, his business entity, and no investor funds from the offering were ever held in an escrow account; rather, Peaslee deposited investor funds into the entity’s operating account and immediately began making withdrawals. In addition, Peaslee distributed investor funds before the minimum contingency was satisfied, thereby rendering the representations in the offering documents false and misleading.
Steven Mark Peaslee (Principal): Barred
Tags:  Accredited Investor    Reg D    Escrow    Minimum Contingency     |    In: Cases of Note : FINRA
April 2011
Woodrock Securities, L.P.
AWC/2009016279401/April 2011

The Firm failed to ensure that investor funds from an offering were deposited into an escrow account during the offering’s contingency period. The firm participated in a best efforts, “minimum-maximum” offering an entity conducted, and the offering summary stated that if the minimum offering amount was not raised during the offering period, the funds held in the segregated account would be returned to the investors; but prior to the minimum offering amount being raised, the issuer withdrew and utilized funds from the bank account.

After only $600,000 had been raised, the issuer withdrew $199,000 and utilized the funds to make a down payment on a portfolio of defaulted auto loans so that the minimum offering amount was not obtained until a later date. The findings also included that the representation in the offering summary that investor funds would be placed in a segregated account until the minimum offering amount had been received was rendered false when the issuer utilized investor funds before the minimum offering amount was raised.

Woodrock Securities, L.P. : Censured; Fined $10,000
Tags:  Best Efforts Offering    Escrow    Minimum Contingency     |    In: Cases of Note : FINRA
Bill Singer's Comment
An all-too familiar story when it comes to mini-maxes, contingencies, and escrow accounts. Frankly, a very fair resolution by FINRA and the sanctions are quite moderate.
Enforcement Actions
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Before my second career as a lawyer, I was the third generation of my family in the wine and liquor industry. In 1981, I started law school; and in 1982, I was hired as a law student in Smith Barney, Harris & Upham's Legal Department. After I graduated law school, I was a regulatory lawyer with the American Stock Exchange and then with the NASD (now... Read On
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