Terrence Jeffrey Diehl (Diehl), a registered representative, settled a complaint with the Financial Industry Regulatory Authority (FINRA), which alleged he participated in outside business activities. Specifically, FINRA alleged Diehl solicited three customers to investment in a private placement without notice to his firm. Based upon these allegations, FINRA suspended and fined Diehl.
Diehl (FINRA CRD No. 2335297) entered the securities industry in 1993 as a general securities representative. In 2003, Diehl worked for Joseph Gunnar & Co. LLC. From 2003 to 2015, Diehl was not registered in the financial industry. From July 2015 to June 2016, Diehl worked for LPL Financial LLC (“LPL”). Diehl is no longer associated with any FINRA-member; however, he remains subject to FINRA’s jurisdiction.
FINRA requires employees of FINRA-member firms to disclose all outside business-related activities, private transactions and all investments recommended to any customers to the member firm. The unlawful business practice of recommending investments outside of a financial advisor’s firm is often referred to as “selling away.” Outside business transactions and selling away are prohibited activities because they serve to undercut the supervisory system implemented by FINRA-member firms and FINRA itself to protect the investing public.
FINRA’s Department of Enforcement investigated Diehl and alleged he solicited three LPL customers to invest $500,000 collectively in undisclosed private transactions. Diehl provided the customers with information about the company, expressed confidence in the CEO of the company, reviewed the purchase agreements, and facilitated the exchange of documents and funds between the issuer and his customers. Diehl allegedly earned $37,5000 in compensation from his customers’ purchases. According to FINRA, Diehl did not disclose these transactions to LPL and did not receive prior approval.
Based upon the foregoing misconduct, FINRA alleges Diehl violated FINRA Rules 2010 and 3280. For example, FINRA 3280 prohibits registered representatives from “participating in any manner in a private securities transaction” unless the registered representative provides written notice to the member, and where he is to receive selling compensation, the member has approved his participation in the proposed transaction. Here, Diehl did not disclose his participation in recommending the private placements to the three customers, and therefore, violated FINRA rules.
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