A Financial Industry Regulatory Authority (FINRA) arbitration panel based in Cleveland, Ohio, unanimously ordered brokerage firm Primesolutions Securities, Inc. and its owner and President, Victor L. Bull, to pay damages and costs of more than $100,000 to two clients represented by the investment fraud law firm of Meyer Wilson. The FINRA arbitrators also assessed the majority of the cost of the hearing against Cleveland-based brokerage firm Primesolutions and Mr. Bull.
Investors, husband and wife, lost $92,500 in a company called KGTA Petroleum (KGTA). Primesolutions’ broker, Jerry Cicolani, recommended and sold KGTA to several Primesolutions customers, including these investors, without the approval or knowledge of Primesolutions. The company was marketed to investors as a petroleum company that earned profits by buying and reselling various crude oils and refined fuel products. According to the Securities and Exchange Commission, KGTA did not generate any revenue through the purchase and resale of oil products. Instead, KGTA used funds from new investors to pay fake returns to old investors. Mr. Cicolani pled guilty to criminal charges relating to these offenses and is currently awaiting sentencing.
At the evidentiary hearing, the brokerage firm argued that it had in place a supervisory system that was reasonable and notwithstanding that, Mr. Cicolani evaded its system and the Ponzi scheme was not detected. However, the arbitration panel’s decision supports the investors’ position that Primesolutions and Mr. Bull had a duty under industry rules to implement a supervisory system that is designed to detect and prevent the type of misconduct that took place here.
According to attorney Chad M. Kohler, who served as one of the Meyer Wilson attorneys for the investors at the hearing, “through the testimony of our expert, we established that the standard of care in the industry is that firms must follow up and do reasonable investigation of all red flags. It is not enough to accept as true the unverified representations of a broker, which is what happened in this case.”
Meyer Wilson attorney Courtney M. Werning, who also represented the investors at the hearing, explained that the panel also held Mr. Bull jointly and severally liable for these failures. “This is an important win for investors in Ohio and across the country,” explained Werning, “because it sends a clear message to officers and directors of brokerage firms that they cannot escape personal liability under the Ohio Securities Act for their firms’ failures.”
Under the Ohio Securities Act (OSA), the purchaser of a security in a transaction that violates the OSA may have an action against “every person who has participated in or aided the seller in any way.” The language and application of the OSA is extremely broad in order to protect consumers. Werning explained, “this award demonstrates that an officer or director’s participation in negligent supervision of a broker is more than enough to establish liability under this section of the OSA when it causes losses to the investor.”
The case caption is FINRA Case ID 14-01186 (Charles David Winter and Jennifer Winter vs. Primesolutions Securities, Inc. and Victor Lawrence Bull).
For more information about this case or other investment loss-related issues please contact one of the attorneys at Meyer Wilson Co., LPA. The law firm is a nationally recognized securities firm representing individual and institutional investors who are victims of investment advisor negligence, fraud, Ponzi schemes, and other investment-related losses. For more information, please contact attorney David P. Meyer at (888) 390-6491.