The allegations read: Brooks was named a respondent in a finra complaint alleging that his member firm, acting through him, failed to adequately supervise a registered representative's oba. The complaint alleges that in connection with a review of the representative's email correspondence, brooks identified red flags indicating that representative was possibly engaged in an undisclosed oba in connection with the company. Brooks subsequently requested that he provide a written explanation of his activities concerning a company for which he made misrepresentations to prospective investors in connection with his promotion of the company that was involved in speculative real estate investments. Notwithstanding representative's failure to disclose the true nature and extent of his involvement with the company, his written explanation raised several "red flags" that should have prompted the firm and brooks to investigate further. However, the firm and brooks did not conduct any additional investigation into the representative's involvement with the company, and did nothing to ensure that he complied with the firm's wsps regarding obas. Although brooks purportedly had concerns about an individual, who had orchestrated several of the failed sponsored investments of the representative's former firm, he did not take any steps to prevent the representative from continuing his involvement with the company. Based on the firm and brooks' failure to conduct any type of meaningful investigation of the representative's activities regarding the company, they did not discover that the representative acted as the manager of the company and engaged in the activities related to the company. By failing to investigate his activities, the firm and brooks also failed to enforce the firm's wsps. The complaint also alleges that the firm, acting through brooks, failed to establish and implement adequate supervisory systems for the capture, review and retention of all of the firm's securities-related email correspondence. As a result, the firm failed to capture, review or retain the securities-related email correspondence of registered representatives who utilized third-party email accounts to conduct securities business with the firm's customers. The firm's wsps strictly prohibited the use of personal email accounts for securities related business unless written permission had been obtained from a registered principal. Even though the firm and brooks knew or should have known that these registered representatives were utilizing personal email accounts to conduct securities-related business since emails were being sent to the firm personnel from these personal email accounts, they did nothing to stop the use of the personal email accounts or enforce the firm's wsps. The complaint further alleges that the firm, acting through brooks, rendered false the representation in a private placement memorandum (ppm) that any units purchased by the general partner or its affiliates would not be counted in calculating the minimum offering when it relied on the general partner's purchases with loan proceeds to meet the minimum investment amount. The firm and brooks also released funds from the offering's escrow account prior to the minimum offering amount being raised from bona fide investors. By prematurely releasing investor funds from the escrow account, the firm and brooks rendered false the representation in the ppm that investor funds would be promptly returned if the minimum offering amount was not obtained during the offering period. As a result, brooks willfully violated section 10(b) of the exchange act of 1934 and rule 10b-9 thereunder.
