June 25 Wall Street's industry-funded watchdog has ejected a brokerage firm and its chief from the securities industry for allegedly running a Ponzi scheme, and ordered it to pay about $13.7 million in restitution to a group of investors composed mostly of current and former professional athletes.
The Financial Industry Regulatory Authority (FINRA) barred Fuad Ahmed, chief executive officer and president of brokerage firm Success Trade Securities, and his firm from membership, it said on Wednesday. Ahmed and Success Trade Securities must jointly pay the nearly $14 million in restitution to 59 investors, the majority of whom were current and former NFL and NBA players.
William Saacke, who represented both Ahmed and his firm, declined to comment on the panel's decision.
A FINRA disciplinary panel found that Ahmed and Success Trade sold $19.4 million of promissory notes issued by its parent company, Success Trade Inc, to investors between February 2009 and March 2013. Ahmed and the brokerage misrepresented or omitted material facts which would have revealed the company's dire financial condition, according to the ruling.
Ahmed admitted that the parent company lost money every year in the last 14 years except 2007, the panel wrote in an 82-page decision. He also misled investors about how their funds would be used, claiming they would be put toward promoting and building Success Trade's businesses, FINRA said. Instead, he used them for personal expenses and to maintain the Ponzi scheme by making interest payments to existing noteholders, according to the panel.
Sixy-five investors, including many professional athletes, purchased 152 notes, investing in amounts a little as $6,500 to as much as $1 million. Only six investors were fully repaid, FINRA said.
Many of the athletes were inexperienced investors, just starting their careers out of college. They were targeted because they had potential to make high income, but little income history, Success Trade broker Jinesh "Hodge" Brahmbhatt testified.
FINRA only identified the affected players by their initials, but they match up to names that were published last year by Yahoo Sports. Athletes who purchased these promissory notes from Success Trade, according to that report, include Detroit Pistons guard Brandon Knight, Cleveland Browns cornerback Joe Haden, Miami Dolphins defensive tackle Jared Odrick and former Washington Redskins running back Clinton Portis.
Decisions by FINRA disciplinary panels typically become final in 45 days, unless the parties appeal or the National Adjudicatory Council, a FINRA appellate body, decides on its own to review the decision.
In April 2013, FINRA issued a complaint against Ahmed and his firm on this issue and filed a Temporary Cease and Desist Order to immediately halt their activities, and Ahmed and his firm consented.
In November, FINRA barred Brahmbhatt, after he failed to appear for testimony in the regulator's enforcement case against the firm and Ahmed. Brahmbhatt, who consented to the sanction in a settlement with FINRA, neither admitted nor denied FINRA's findings, according to a regulatory document. (Reporting By Michael Leibel; Editing by Tom Brown)