The Financial Industry Regulatory Authority has filed fraud charges against Sandlapper Securities. According to the self-regulatory organization, the small brokerage firm created and sold private placements in saltwater disposal wells in Texas while charging undisclosed markups of up to 270% that eventually totaled over $8M on numerous deals.
Also accused of fraud are Sandlapper CEO Trevor Gordon, firm executive Jack Bixler, and two ex-brokers. FINRA contends that in 2011, the four men set up Tiburon Saltwater Reclamation Fund to invest in these wells. They also established a development company to handle the investments in the wells. However, alleges the SRO, between 12/12 and 7/13, Bixler and Gordon utilized the development company to intervene between the fund and the saltwater disposal well deals and they charged markups ranging from 161-270%. Not only were these markups excessive but also they went undisclosed. This occurred even though the fund could have directly bought interest in the wells.
Also, claims FINRA, beginning in 2013, Gordon began using the development company to obtain ill-gotten profits from investors who bought interest in the saltwater disposal wells. The company bought the interests and then resold them to investors, again at high, undisclosed markups of 67% to 376%.
170 investors purchased $12.5M of the fund’s securities from 8/2011 to 12/2013. Fees, allowances, and commissions were purportedly more than 16% of investors’ funds on the securities. Meantime, according to the private placement memorandum for the fund, its objectives were to not just protect capital but also provide a long-term 15% return.
FINRA, in its complaint, accused Bixler and Gordon of going against the best interests of investors while earning ill-gotten gains. Sandler is accused of having known about the private placement fraud through the two men, who, as fund managers, owed fiduciary obligations that they allegedly violated when they “usurped” investment opportunities to resell the investment with the added markups and did not make sure that the fund was ensured “fair pricing.”
Also, Gordon is accused of numerous conflicts of interest, while Sandlapper purportedly failed to put in place a supervisory structure that could tackle these conflicts. Both he and the broker-dealer are accused of not reasonably supervising sales activities.
According to FINRA’s BrokerCheck, the regulator notified Sandlapper earlier this year that it could be the subject of a disciplinary action over its sale of private placements and direct investments that may have violated securities industry rules. At Shepherd Smith Edwards and Kantas, our Texas private placement fraud lawyers represent investors throughout the state. We also work with investors throughout the US. Our securities law firm has helped thousands of investors to recover money lost because of fraud.
Private Placements
These non-public offerings are often used to raise funds. Private placements are usually sold to accredited investors and they are typically not liquid, meaning that they are not easy to sell or trade on the open market. Private placements are not suitable for all investors. Contact our Texas securities law firm today.
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Broker-dealer charged fraudulent markups of up to 270% on water disposal deals: Finra, InvestmentNews, October 2, 2017
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