FINRA Bars WestPark Stockbroker In Fraudulent Promissory Note Scheme
Harry Seth Datys of New York New York a stockbroker formerly employed by WestPark Capital Inc. has been fined $20,000.00 and suspended from associating with any Financial Industry Regulatory Authority (FINRA) member in any capacity founded on findings that he advised customers of WestPark to purchase promissory notes that were not suitable for them and that Datys made omissions and misrepresentations to customers with regard to these promissory notes purchases. Letter of Acceptance Waiver and Consent No. 2017054381601 (Sept. 7, 2020).
According to the AWC, from January of 2012 to February of 2016, 24 promissory notes had been solicited by Datys as part of two securities offerings. These promissory notes which had been sold to fourteen customers were issued by WestPark Capital’s parent company, WestPark Capital Financial Services LLC. FINRA indicated that $2,713,200.00 was raised through the securities offerings which enabled Datys to take in $183,000.00 in commissions. The promissory note terms included payments of five percent interest per year, equity participation via stocks and warrants, and participation in WestPark’s profits.
FINRA stated that there was no reasonable review conducted by Datys in reference to these offerings. The regulator indicated that the subscription agreements and financial statements provided to Datys by the Chief Executive Officer of the parent company had contained red flags regarding its ability to make investors whole on those notes. As one example of this, Datys did not look into a $1,000,000.00 credit line that the parent company claimed to have held with a bank. The parent company defaulted on that line of credit unbeknownst to Datys because he did not investigate the credit line. The stockbroker was also ignorant of the parent company’s forbearance agreements and its failure to repay the bank on each of those agreements. The parent company and its Chief Executive Officer were sued by the bank for its failure to repay.
FINRA also found that Datys did not complete adequate due diligence to make sure that he comprehended risks which had been associated with those promissory notes. The stockbroker did not grasp that noteholders were entitled to distributions from the parent company instead of the securities broker dealer. WestPark Capital Inc. was in a better position to pay noteholders than its parent company because of the securities broker dealer’s higher profits and access to investment banking opportunities. Datys incorrectly determined the risk of repayment by looking at the securities broker dealer instead of its parent. He also overlooked concerns about the parent company’s operations and financial condition. The stockbroker did not bother to probe the parent company or its Chief Executive Officer. FINRA determined that Datys’ actions in this respect constituted the violation of FINRA Rules 2010 and 2111(a) as well as NASD Rule 2310.
FINRA also determined that Datys omitted and misrepresented information to investors who purchased promissory notes. He told investors that they were granted a share in the profits and equities of the securities broker dealer. This was not true as that guarantee was associated with the parent company who had lower profits and less financial opportunities than the securities broker dealer. The customers were falsely told that they would receive warrants or stocks for all of the securities broker dealer’s deals including initial public offerings and private placements.
The AWC also indicated that conflicts of interest were not disclosed by Datys including the problem with the Chief Executive Officer being in charge of the securities broker dealer in addition to its parent company. Any decisions regarding distributions to the parent company had rested with the securities broker dealer. The only way that the parent company derived any revenue was through the securities broker dealer. The regulator noted that the parent company’s profits were impacted largely by the Chief Executive Officer’s decisions. Investors were not apprised of this information.
The regulator also noted that customers were provided with phony historical analysis from the Chief Executive Officer. These documents contained misrepresentations about what investors stood to earn by investing in the promissory notes. The AWC stated that the information was presented as historical when it was really hypothetical. The data also did not take into account significant factors such as a change in the value of a company after its initial public offering. FINRA pointed out that the companies who were reflected in this data had been accused of fraud.
The regulator additionally stated that the offering documents contained omissions as to the parent company’s default on a line of credit and the parent company’s $1,700,000.00 in liabilities. FINRA noted that $600,000.00 of those liabilities consisted of money owed to prior noteholders which was left unpaid. Liabilities also included a $400,000.00 loan made out to the Chief Executive Officer which was not repaid. The AWC also mentioned that investors were not told about the risks relating to their ability to sell equity because of lock-up or leak-out restrictions.
Noteholders who inquired about their investments were met with more of Datys’ omissions. When he responded to them, he did not tell them that they were not entitled to the securities broker dealer’s equity. FINRA found the negligent omissions and misrepresentations by Datys to be violative of Securities Act Sections 17(a)(2) and (3) as well as FINRA Rule 2010.
FINRA Public Disclosure confirms that Datys has been identified in fifteen customer initiated investment related disputes regarding accusations of his unreasonable sales tactics while employed by securities broker dealers including WestPark Capital. Datys is referenced in a customer initiated investment related arbitration claim which was settled on April 18, 2018 to resolve allegations of Datys’ misleading and false statements and his unsuitable trading.
Datys’ employment with WestPark Capital Inc. has been terminated as of January 10, 2020.