FINRA’s Department of Enforcement investigated Chao and alleged he introduced at least 13 firm clients to another firm that sponsored the Facebook special purpose vehicle (“SPV”). According to FINRA, nine of those clients invested a total of $1.27 million in the Facebook SPVs. During the relevant time period, LPL”s policies and procedures prohibited firm employees from engaging in outside business activities without prior written notice and approval. Chao sought LPL’s approval and was denied, but nevertheless, Chao solicited his clients to invest in the Facebook SPV outside of the firm.
In addition to recommending unapproved Facebook SPV investment to some of his customers, Chao actively sought to conceal his misconduct from LPL and then FINRA. For example, Chao regularly used an unapproved email address for communications related to his customers’ investments in the Facebook SPV. Further, FINRA sent Chao a request pursuant to FINRA Rule 8210 seeking information related to LPL’s allegations that Chao had participated in private securities transactions. Chao made at least two false representations to FINRA in connection with this request.
Based upon the foregoing misconduct, FINRA alleges Chao violated NASD Conduct Rules 3010 and 3040, as well as FINRA Rule 2010 and 8210. Specifically, NASD Rule 3040 prohibits associated persons from participating in any manner in a private securities transaction outside their regular course of employment with a member firm, without providing prior written notice and receiving prior written approval from the member firm. A violation of NASD Rule 3040 also constitutes a violation of FINRA Rule 2010, which requires associated persons to observe high standards of commercial honor and just and equitable principals of trade.
Lufrano Law, LLC is a national securities litigation firm and has experience representing investors who have investment disputes with brokers and broker-dealers. If you suffered investment losses with Chao, you may be able to recover your losses through FINRA arbitration. Our firm only receives a fee if you recover money. Please contact one of our attorneys at (800) 627-2179 to schedule a free consultation.