This is your July 2, 2014 issue of the State Securities Board Bulletin, an occasional roundup of regulatory news and investor education information.
A Brazoria County grand jury has indicted Alan Derek Jernigan of Lakeway on charges of securities fraud, money
laundering, and aggregated theft for the alleged offer for sale and sale of
investments in deals to export medical test kits to foreign countries. The
indictment, issued June 5, alleges that Jernigan sold nearly $463,000 worth of
investment contracts while failing to disclose a number of financial
problems to investors. The securities fraud indictment alleges that Jernigan
misrepresented that his companies had secured exportation contracts with the
governments of the Philippines and Malaysia and that he had completed similar
deals in the past.
The indictment also alleges that at the time Jernigan sold
the investment contracts, he failed disclose to investors that he filed a
Chapter 13 Voluntary Bankruptcy Petition in Galveston in 2007, a proceeding
that was pending during his sale of the allegedly fraudulent investments. Jernigan
also failed to disclose he had not paid a $53,847 Circuit Court judgment
against him in Maryland related to a similar investment program.
Brazoria County Criminal District Attorney Jeri Yenne has
appointed State Securities Board enforcement division attorneys Matthew Leslie
and Greta Cantwell as special assistant criminal district attorneys.
Unauthorized withdrawal of client funds. Making unsuitable
recommendations to clients. Failure to pay clients their promised return.
Excessive fees. And lying to the State Securities Board staff. Result:
Texas Securities Commissioner John Morgan on June 27 revoked the registrations
of Kenneth Wayne Graves and Warren Financial Services (WFS), both of Corpus
Christi.
The Default Order was entered June 27 after Graves, an investment adviser representative, and
WFS, the investment advisory firm he operated as the managing member, failed to
respond a Notice of Hearing filed May 19 at the State Office of Administrative
Hearings.
Graves sold a security that promised to pay between 2.5% and
5% of WFS’ monthly gross income for periods of between three and seven years.
Five investors paid a total of $425,000 for the investment, but the firm
underpaid investors and in many months didn’t make any payments to certain
investors. Graves told State Securities
Board staff that the WFS investments were “verbal commitments,” when in fact
the investments were documented.
At Graves’ urging, one client in May 2012 purchased $70,000 of
the investment, even though that amount accounted for the vast majority of the assets WFS was managing for her. The client's principal was locked up until July 1, 2019.
Graves and WFS charged clients fees that were much higher
than the 2% annual management fee listed in its investment management
agreement. Graves also made unauthorized withdrawals of $138,381 in advance
management fees from clients’ custodial accounts.
The State
Securities Board registers securities offered or sold in Texas; oversees the
firms and individuals selling securities or providing investment advice;
enforces the Securities Act through criminal, civil and administrative
penalties; and provides investor education presentations and material. For more
information, contact Robert Elder, Communications, Communications Coordinator
& Investor Education Specialist, at 512 305 8386.
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