2017
The following are summaries of the administrative actions taken by the State Securities Board from Oct. 1 through Dec. 31, 2017.
Jackson Financial Services: Revoked
Texas Securities Commissioner Travis J. Iles revoked the investment adviser registration of Irving-based Jackson Financial Services on Dec. 29 after its president, David Jackson, repeatedly refused to turn over emails regarding his solicitation of clients.
The Disciplinary Order stemmed from a targeted inspection on Nov. 15 by Texas State Securities Board staff, which was investigating whether David Jackson was soliciting individuals via email to invest in private securities offerings.
State Securities Board staff asked Jackson to provide his email correspondence. Jackson refused and told staff to leave his office.
Jackson twice subsequently refused to furnish the emails, once in response to a Dec. 15 letter from staff and again in a Dec. 21 phone call with staff.
The Texas Securities Act and State Securities Board Rules require an investment adviser to grant the State Securities Board immediate and complete access to the adviser's records. Refusing to provide records is grounds for revoking registration.
USI-Tech Limited, Clifford Thomas, Michael Rivera: Emergency Cease and Desist Order
Texas Securities Commissioner Travis J. Iles entered an Emergency Cease and Desist Order on Dec. 20 against USI-Tech Limited, an overseas firm that is promising low-risk, triple-digit returns from investments tied to Bitcoin mining. The enforcement staff of the State Securities Board presented evidence to the Securities Commissioner that USI-Tech, based in Dubai, and two U.S.-based sales agents are soliciting investors in dozens of Texas cities through targeted craigslist advertisements, YouTube videos, and standalone websites.
Neither USI-Tech nor the sales agents, Clifford Thomas of Suitland, Md., and Michael Rivera of Los Angeles, are registered to sell securities in Texas. The investment also is not registered in Texas.
The agents’ websites claim the mining investment “derives its value from [USI-Tech’s] non-exclusive interest in a series of Bitcoin mining contracts.” They promise a daily return of 1%. The USI-Tech website says its Bitcoin platform “consistently provides returns of up to 150% per year.” The returns do not depend on the value of Bitcoin, according to the company.
According to the order, USI-Tech is telling potential investors they can make more money by convincing other individuals to invest in the company’s bitcoin platform. Investors can earn “up to 35% commissions” through its “unique referral marketing plan.”
USI-Tech is not informing investors of the danger in being paid commissions from referrals. Individuals paid these commissions must either be registered with the State Securities Board or qualify for an exemption from registration.
In addition to violating registration requirements, USI-Tech and the sales agents are violating State Securities Board rules by failing to disclose information investors would need to make an informed decision about whether to invest.
The disclosure violations include information about the facilities used to mine bitcoins, the costs of mining bitcoins, and whether they have successfully mined bitcoins; the terms of the contracts and an explanation of USI-Tech’s “non-exclusive interest” in mining contracts; and information about whether the company’s financial condition is strong enough to provide a 1% daily return.
Richard L. Havard: Fined, Reprimanded
Richard L. Havard, a registered investment adviser representative in the North Dallas suburb of Prosper, was fined $7,500 and reprimanded for failing to disclose $192,573 in IRS tax liens.
Texas Securities Commissioner Travis J. Iles imposed the sanctions in a Disciplinary Order entered Dec. 1. The order also granted Havard's application for registration as an agent of Dominion Investor Services Inc. and as an investment adviser representative of Dominion Portfolio Management Inc.
The IRS filed six tax liens against Havard from 2010 to March 2017. Havard violated State Securities Board rules that require registered individuals to report to the Securities Commissioner within 30 days any changes from previous filings, a category that includes unsatisfied judgments or liens.
Havard didn't disclose individual liens until between two and five years after they were filed against him.
Octavio Tovar: Fined, Reprimanded
Texas Securities Commissioner Travis J. Iles entered a Disciplinary Order Nov. 21 that levied a $3,000 fine on Octavio Tovar, a securities agent in Katy, for not disclosing compromises with creditors and civil judgments against him.
The order also reprimanded Tovar and granted his registration as an agent of Mid Atlantic Capital Corp.
The application for securities registration requires an individual to disclose compromises with creditors and unsatisfied judgments or liens.
Tovar did not disclose in a timely manner three compromises with creditors reached in 2015 and 2016. He also did not disclose two civil judgments entered against him in 2015 and 2016.
John McDonough, 212 Advisory Group: Suspended, Fined
John Michael McDonough, an investment adviser representative in The Woodlands, was suspended for 90 days and his employer, 212 Advisory Group LLC, was fined $15,000 for violating a previous agreement to strenghten its compliance oversight. The order was entered Oct. 23.
The Securities Commissioner in 2015 approved McDonough’s registration as an investment adviser representative in Texas with Covington, Ga.-based 212 Advisory Group, based in Covington. The approval required McDonough and the firm to comply with an “undertaking” agreement that restricted his business activities and required 212 Advisory Group to increase its supervision of him.
At the time he applied for registration in Texas, McDonough had already been sanctioned by the Financial Industry Regulatory Authority. In 2013, he agreed to the terms of an Acceptance, Waiver and Consent Order (AWC) filed with FINRA. The AWC alleged that McDonough violated policies of his then-firm, AXA Advisors LLC, by engaging in outside business activities and participating in four undisclosed private securities transactions. FINRA suspended McDonough for six months and fined him $10,000.
Before registering McDonough in Texas, State Securities Board staff reviewed records used in the AWC. McDonough agreed to abide by the State Securities Board’s undertaking to be registered in Texas. In an inspection in April 2017, however, State Securities Board staff found that McDonough and the firm violated every provision of the undertaking.
According to the order, 212 Advisory failed to ensure that McDonough did not serve in any supervisory capacity and that he was under the direct supervision of a principal of 212 Advisory. 212 Advisory also failed to perform required compliance reviews by an outside, independent firm, and did not maintain records of supervisory activities required by the undertaking.