Texas Securities Commissioner John Morgan has entered Disciplinary Orders against two investment advisers for selling securities and collecting commissions without being registered as dealers.
Marvin M. Slater of Dallas was suspended for 90 days for the sale of promissory notes that he claimed were backed by life settlements. Michael Reed Hall of Carrollton was reprimanded and fined $5,000 for selling shares of unregistered stock issued by a public company through a private offering. The orders were entered Dec. 10.
Neither adviser was registered as a dealer or agent, a requirement under the Texas Securities Act. Both advisers were also ordered to cease and desist from violating the Securities Act.
“Just because someone is registered as an investment adviser doesn’t mean he or she can sell securities for a commission,"Commissioner Morgan said. "There are distinctions between the duties owed to clients by dealers and investment advisers. A key reason is the expectation that an investment adviser will not benefit financially from a client's investment in a specific product."
In touting the promissory notes on his Facebook page, Slater stressed common themes in sales pitches for alternative investments -- frustration over low interest rates, distrust of the stock market, and dissatisfaction with workplace retirement plans.
“Disappointed in your 401K? CDs are no good,” the post read. “I recently cane (sic) across secured notes paying 9.3% annual and that beats both and has nothing to do with the stock market.”
The promissory notes Slater promoted on his Facebook page are issued by New Jersey-based Verto Capital Management LLC. Verto issued nine-month notes with a return of 7% -- an effective annual return of 9.3%.
According to Verto’s offering documents, it plans to use the money raised by the sale of the notes to buy life settlements and resell them to financial institutions. The purported profit from the resales would pay the returns promised by the notes.
In a life settlement transaction, a company sells a third-party’s life insurance policy to an investor. The investor receives an interest in the death benefits, and the benefits are paid to the investor when the third-party dies.
Slater sold a Verto note to his wife, who is also an investment advisory client, in November 2014 and received a commission. He then posted on Facebook, “Very safe and we did it and would recommend it for a safe base to an investment plan.”
The fine assessed Hall, the president of investment advisory firm Hall ETF Wealth Management System Inc., stemmed from his sale of a company's unregistered stock through a private offering.
Hall sold $306,000 in stock issued by a public company to 21 investors. He received $30,600 in commissions for these sales, or 10% of value of the stock sold.