FINRA fines firm $223,000 in Brogdon-related case
WASHINGTON — The Financial Industry Regulatory Authority fined Cantone Research Inc. and its two top officers a total of $223,000 for violating federal securities laws and FINRA rules in connection with the sales of securities linked to accused fraudster Christopher Brogdon.
FINRA's National Adjudicatory Council handed down its decision Wednesday, largely affirming an earlier panel's decision that CRI President Anthony Cantone and his firm should have disclosed material information about late payments and Brogdon's disciplinary troubles.
The case arose from sales of over $8 million worth of certificates of participation which were tied to underlying projects involving the redevelopment of nursing homes, assisted living facilities, and other real estate ventures owned and controlled by Brogdon and which CRI began offering to its customers in 2008. COPs are a type of financing where an investor purchases a share of the revenues of a project rather than the bond being secured by those revenues.
Brogdon, an Atlanta-area businessman, was charged with fraud and settled with the Securities and Exchange Commission in 2015.
FINRA simultaneously brought a complaint against CRI, alleging that Cantone broke the law and the rules by failing to disclose to investors missed and late payments and negative material financial information related to Brogdon's projects, as well as Brogdon' s troubled disciplinary history.
A FINRA hearing panel decision in 2017 found that CRI should have disclosed to its customers much of the information about Brogdon's past, such as a 2003 lawsuit involving him, but found that some of the information was too old to be material investors.
Both Cantone and FINRA enforcement appealed the decision to the NAC with Cantone and CRI seeking a reduction of the $225,000 fine imposed on himself, his firm, and his wife and enforcement seeking additional restitution for investors and findings that all of the old information was material.
The NAC is a FINRA committee that reviews initial decisions rendered in FINRA disciplinary and membership proceedings. The NAC may affirm, dismiss, modify, or reverse any finding, or send the case back to a hearing panel for further proceedings. The NAC may affirm, modify, reverse, increase, or reduce any sanction or impose any other fitting sanction.
Unless FINRA's Board of Governors decides to review the NAC's appellate decision, the NAC's decision represents FINRA's final action. A firm or individual can appeal FINRA's decision to the SEC.
FINRA enforcement appealed the hearing panel's finding that CRI and Cantone were not required to disclose that Brogdon was twice barred by the National Association of Securities Dealers. The hearing panel said it was not material because of its “temporal remoteness.”
The Adjudicatory Council decided that Brogdon being barred was material, writing that CRI and Cantone relied on positive descriptions of the businessman.
“They cannot tout Brogdon's decades' old successes and then cry foul when taken to task for not including his decades' old failures,” the NAC wrote. “Respondents were selling Brogdon's experience and integrity, and as such they had an obligation to investors to include factual information that reflected business misconduct.”
Cantone provided testimony from CRI customers that said if they had known about Brogdon’s bans they would have still made their investments. Enforcement's witness said they would have wanted the information disclosed before deciding to invest.
The Council suspended Cantone a total of 15 months and fined him a total of $150,000 jointly and severally with his firm for violating Sections 10(b) and 17(a) of the Exchange Act, and FINRA Rules 2020 and 2010.
The Council fined Christine Cantone, CRI chief compliance officer and wife to Anthony Cantone $73,000 and suspended her for two years for violating NASD Rule 3010 (a) and FINRA Rule 2010 by failing to supervise her husband. She will have to re-qualify as a securities principal following the conclusion of her suspension.
The NAC also affirmed the hearing panel's imposition of hearing and appeal costs totaling nearly $19,000 among among the two Cantones and CRI.
Cantone’s lawyer Michael Gross declined to comment.