A Wall Street regulator said on Thursday it has charged a Washington-based online brokerage with civil fraud related to the sale of promissory notes to 58 investors, including current and former professional basketball and football players.
The Financial Industry Regulatory Authority (FINRA), an industry-funded watchdog, alleged in a complaint that Success Trade Securities Inc and Chief Executive Fuad Ahmed misrepresented that they were raising $5 million through the sale of promissory notes. It said they continued to sell the notes, even though the sales exceeded the original offering by more than 300 percent.
The FINRA documents did not disclose the athletes' names.
Success Trade Securities and Ahmed plan to defend against FINRA's complaint in an upcoming hearing, said Fabian Jarrin, the brokerage's chief compliance officer. Success Trade is still operating and the investors have not lost their money, Jarrin said.
Most of the notes promised to pay an annual interest rate of 12.5 percent on a monthly basis over three years, with some notes promising to pay interest as high as 26 percent, FINRA said.
FINRA alleged Ahmed and Success Trade did not disclose the amount of the company's existing debt to investors, or that it was not able to make future interest payments to them without raising money from new investors.
Investors allegedly were also not told that Ahmed intended to use proceeds from the sales to pay about $4 million in interest to other noteholders and a $1,300 per month lease on his Range Rover, according to the complaint.
Ahmed also allegedly used proceeds to finance personal expenses, such as travel and clothes, through undocumented interest-free loans, FINRA said.
FINRA ordered Success Trade and Ahmed to temporarily stop selling the notes and refrain from other activities because the investors were at risk of losing their money before FINRA can hear and decide the disciplinary case, according to a regulatory document. The firm and Ahmed agreed to the order.
(Reporting by Suzanne Barlyn; Editing by Phil Berlowitz, Jeffrey Benkoe and Kenneth Barry)