The allegations read: Without admitting or denying the findings, brooks consented to the sanctions and to the entry of findings that he made negligent material misrepresentations and omissions to investors who purchased limited partnership interests in two private placement securities offerings that he controlled, acting in contravention of section 17(a)(2) of the securities act. The findings stated that brooks' partner, who was a former associated person of their member firm, transferred $4.325 million from the proceeds that one entity raised from its investors to the other entity to pay the other entity's expenses. Upon learning of the transfer, brooks initiated an independent review, restricted access to the bank accounts of the entities, and caused the proceeds to be returned in full. However, brooks negligently failed to inform investors that money had been transferred out of the project to fund the other entity. The transfers to the other entity were not made for the exclusive benefit of the entity, and therefore were not a permissible use of investor proceeds as set forth in the entity's ppm. In addition, brooks negligently allowed the value of the transfers from the entity to be included in supplemental ppms issued by the other entity as capital raised by the partnership, which as a result, overstated the amounts raised by the other entity in the supplemental ppms. Further, brooks' partner caused the entities to use approximately $224,000 of investor proceeds from their offerings to pay certain expenses of another unrelated entity. These funds were later returned to both of the entities by the unrelated entity. Brooks negligently failed to discover and disclose this use of proceeds to investors. This use of proceeds was not identified in either of the entities' ppms, thus making the ppm's representations to investors about the use of proceeds inaccurate and materially misleading. In both instances, brooks did not disclose the use of proceeds to the firm's registered representatives, who were selling investments in the entities to their customers, or to his own customers, whom he was soliciting to purchase interests in the entities.
