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NJ Bureau of Securities Revokes Registration, Assesses $150,000 Civil Penalty Against Former New Jersey Broker-Dealer Agent Who Sold Unregistered Securities Tied to a Tequila Production Company
SUMMARY PENALTY, REVOCATION AND DENIAL ORDER
Attorney General Matthew J. Platkin and the Division of Consumer Affairs today announced that the Bureau of Securities revoked the registration of a former New Jersey broker-dealer agent and assessed a $150,000 civil penalty against him for violating New Jersey’s securities laws by selling unregistered securities of a startup tequila production company whose founder subsequently was convicted of securities fraud and misappropriating investor funds for personal use.
Michael W. Mandel, of Suffern, New York, sold securities in the form of ownership interests in 6 Degree Tequila LLC (“6 Degree”) via unauthorized private transactions made while he was employed as an agent and an investment adviser representative of two New Jersey broker-dealers. In a Summary Penalty, Revocation, and Denial Order issued by the Bureau today, Acting Bureau Chief Amy G. Kopleton found that Mandel sold unregistered securities in violation of the New Jersey Uniform Securities Law and in violation of policies in place at both firms he worked for that prohibited registered representatives from engaging in outside business activities, including private securities transactions and selling unapproved products.
In addition to assessing a $150,000 civil penalty against Mandel, the Order revokes his prior agent and investment adviser representative registrations and denies his current application to register as an investment adviser representative in New Jersey.
“We will not allow financial professionals to enrich themselves by circumventing the laws that provide critical protections for investors and ensure the integrity of our financial markets,” said Attorney General Platkin. “By taking action today, our Bureau of Securities has removed this rogue professional from practice and held him accountable for unlawful conduct that exposed investors to unnecessary risks.”
From at least August 2014 to October 2016, Mandel sold unregistered securities in the form of ownership interests in 6 Degree. Mandel sold approximately $887,000 in unregistered securities, of which $439,000 was raised in sales to 10 New Jersey investors.
In issuing the Summary Penalty, Revocation, and Denial Order, the Bureau concluded that Mandel engaged in conduct that included:
- Selling unregistered securities;
- Acting as an agent of 6 Degree without registration;
- Omitting material facts by failing to disclose to investors that, among other things, the securities were unregistered, he had not conducted any due diligence with respect to 6 Degree, the unregistered securities were not on the approved products lists for the firms he worked for, and that he was recommending the purchase of the unregistered securities in violation of the firms’ policies; and
- Engaging in dishonest and unethical practices in the securities business.
“Investors have a right to expect that financial professionals are complying with the law and with industry standards,” said Cari Fais, Acting Director of the Division of Consumer Affairs. “The message we are sending today makes it clear that New Jersey enforces the laws that ensure transparency in our securities industry and protect consumers from fraud.”
According to the Order, beginning in the fall of 2014, while working for a broker-dealer, Mandel invited prospective investors, including friends and his advisory clients, to 6 Degree promotional events such as golf outings and cocktail parties, most of which included a solicitation to invest in 6 Degree. Mandel attended the events and targeted his clients whom he believed could afford to invest in 6 Degree.
By failing to disclose this activity to his employing brokerage firms and obtain their required approval to sell the tequila company’s unregistered securities, Mandel short-circuited the policies and procedures designed to protect investors from unsuitable, fraudulent investments. Mandel compounded the investors’ risk of investing in the tequila company by steering several investors to establish self-directed individual retirement accounts (“SDIRAs”) that provide no due diligence or guidance regarding investments. For at least one of the brokerage firm’s clients, Mandel facilitated the movement of funds that the client had invested out of the client’s firm account to an SDIRA by selling shares held in the client’s firm account and having his assistant help transfer the proceeds.
“The use of SDIRAs is a red flag to investors that they need to verify that the security they’re purchasing is appropriately registered by law because no one else is doing it for them. With SDIRAs, investors have the sole responsibility for evaluating and understanding the investments in the account,” said Acting Bureau Chief Kopleton. “In announcing this action, the Bureau is raising investor awareness of the risks associated with SDIRAs, including a lack of legal and regulatory protection and a heightened risk of fraud.”
The Bureau’s investigation was handled by Enforcement Chief Richard Szuch, Supervising Investigator Irwin Slotnick, Supervising Investigator Rachel Glasgow, Investigator Boris Maltsev and Investigator Meryl Hubscher. The Bureau is represented by Section Chief and Deputy Attorney General Victoria A. Manning of the Securities Fraud Prosecution Section in the Division of Law’s Affirmative Civil Enforcement Practice Group.
For tips on how to be an informed investor regarding self-directed individual retirement accounts visit the Investor Education Materials page on the Bureau of Securities website at www.njsecurities.gov or click here.
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The Bureau is charged with protecting investors from investment fraud and regulating the securities industry in New Jersey. It is critical that investors “Check Before You Invest.” Investors can obtain information, including the registration status and disciplinary history, of any financial professional doing business to or from New Jersey, by contacting the Bureau toll-free within New Jersey at 1-866-I-Invest (1-866-446-8378) or from outside New Jersey at (973) 504-3600, or by visiting the Bureau’s website at www.NJSecurities.gov. Investors can also contact the Bureau for assistance, or to raise issues or complaints about New Jersey-based financial professionals or investments.
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