The allegations read: Willfully violated section 10(b) of the securities exchange act of 1934 and rule 10b-5; violated finra by-laws article v, section 2, finra rules 1122, 2010, 2020, 2150: osborn willfully made fraudulent misrepresentations and omissions of material facts in connection with the purchase or sale of securities in private offerings, conducted on behalf of issuers, and raised approximately $5.09 million from investors through the sale of the offerings. Osborn failed to disclose material facts concerning the financial condition of the issuers. Osborn, for one of the offerings, provided investors with a firm-prepared executive summary as part of the investor package that failed to disclose material information to investors about the issuer and its owner/chief executive officer's outstanding federal and state tax liens and the owner's personal debt. Osborn discovered through his involvement in the due diligence for the offering that the issuer and its owner were the subject of significant federal and state tax liens, and that the owner had outstanding credit card debt. Osborn distributed the issuer's investor packages knowing that it contained material omissions. Osborn failed to disclose to investors the material information that the issuer had failed to make any interest payments due under the notes, and he continued selling the offering even after it began defaulting on the notes' interest payments. Only three investors, who were personally selected for repayment by osborn and the owner, received their principal back. Osborn used investor funds to redeem the notes of some investors with whom he or the firm had a business or personal relationship, after the issuer had defaulted on the notes held by those investors, using money invested by new investors contrary to the terms of the issuers' offerings. Osborn failed to disclose the material information to new investors that funds designated for investment in the offerings would be used to selectively redeem the investments of earlier investors or an investor. Osborn never disclosed material facts to prospective investors of his significant ownership stake in an offering, or his $310,000 financial investment in the company, both conditions that created potential conflicts of interest. Osborn failed to disclose to investors material information regarding the issuer's weak financial condition or regarding its inability to fund operations without loans from osborn or his associates, and that certain firm customers were given terms superior to the notes when lending money to the issuer. Osborn was aware, because he was a director of the issuer and provided a presentation and sent email that misrepresented and failed to disclose material facts. Osborn obtained a personal loan and a loan for the issuer from a customer, and a two-month $175,000 loan from another customer for the issuer that was secured by osborn's ownership interest in the issuer which was never repaid to the customer. Osborn was aware that the issuer never made any of the promised interest payments to the initial offering investors or to the note holders, but he continued to sell the issuer's notes in the private offering. Osborn exercised control over issuers' offerings funds in escrow accounts. Osborn converted $127,265.29 in customer funds that were supposed to be invested in the issuers' offerings by directing wire transfers from escrow accounts to his personal bank account and attempted to conceal that he received the transfers from one of the escrow accounts. As a result of the commingling of funds in an escrow account, osborn misused $200,000 in customer funds from the offerings to make payments to, or on behalf of, another offering. The issuer had no authority to receive funds from the other issuers under the terms of each of these offerings. Osborn willfully failed to amend his form u4 to disclose that he had a federal tax lien filed against him in the amount of $265,755.
