SEC Settles Unregistered Broker Charges Tied To Offering Fraud
The SEC entered into partial settlements with three persons charged with acting as brokers without registering. The charges were tied to an offering fraud which centered on selling interests in a firm that claimed to be engaged in the business of buying and selling fractional interests in oil and gas production properties and commodities trading in the futures market (here). Over $16 million was raised selling stock and bonds. In the Matter of David B. Hananich, Jr., Adm. Proc. File No. 3-16354 (July 28, 2015).
Named as Respondents are Mr. Hananich, a cofounder and director of Diversified Energy Group, Inc.; Carmine DellaSala, also a co-founder of Diversified who was previously named as a Respondent in a cease and desist action brought by the state of Kanas; Matthew Welch, a vice president of Diversified and a board member of St. Vincent, a firm investors were told was a charity; Richard Scurlock, III, the owner of RTAG, a state registered investment adviser; RTAG Inc.; Tax Advisory Group; Jose Carrio and Dennis Karasik, co-founders of Respondent Carrio, Karasik & Associates, LLP, a wealth management firm; and Michael Salovay, a one-time registered representative.
From 2006 through 2008 investors were solicited to purchase interests in Diversified and offered stock at prices ranging from 20 cents to $1.55 per share. A PPM was used. The shares were unregistered.
Subsequently, from 2009 through 2012 investors were solicited to purchase Diversified bonds which had a coupon rate of 8% to 10.25%. Some of the bonds included an option to acquire stock. There was no registration in effect for the bonds. About $16.5 million was raised.
To effectuate the sales of Diversified interests, unregistered sales agents were used. Those agents were paid a commission of either 5% or 10%. The agents included Mr. Scurlock and RTAG and Messrs. Carrio and Karasik and CKA and Mr. Salovay. In soliciting investors misrepresentations regarding the financial performance of Diversified were made. Additional misrepresentations were made regarding the firm’s use of experts for advice. In addition, Messrs. Havanich, Dellasla and Welch touted their relationship with St. Vincent. The firm had no relationship to the well-known charity of St. Vincent de Paul, a voluntary Catholic organization.
The Order alleges violations of Exchange Act Section 15(a). Messrs. Karasik, Carrio and their firm, Carrio, Karasik and Associates resolved the charges, each consenting to the entry of a cease and desist order based on Section 15(a). Each also agreed to be barred from the securities business and from participating in any penny stock offering. In addition, each settling Respondent agreed to pay disgorgement and to future proceedings which will determine the amount plus prejudgment interest if, ordered, and a penalty if appropriate.