According to the Arkansas Securities Commissioner, Niaz Elmazi (a New York resident who was registered with the Arkansas Securities Department as a broker-dealer agent with HFP Capital Markets LLC, CRD No. 44351, from June 9, 2009 to May 16, 2013) was recently sued by the Arkansas Securities Commissioner.
According to the Arkansas Securities Commissioner, on July 30, 2012, Elmazi allegedly contacted an Arkansas resident on a cold call recommending the purchase of certain corporate bonds issued by Verso Paper Corp. Elmazi was not aware at the time of the call that the person he was speaking to was employed as a Senior Securities Examiner with the Arkansas Securities Department or that he had called the office phone during business hours.
According to the Arkansas Securities Commissioner Case No. S-12-0102, Elmazi pitched the Verso bonds as a short-term investment that was trading at sixty cents on the dollar and paying an 11.5% coupon. Elmazi allegedly represented that a takeover of Verso by its competitor was imminent. He allegedly asserted that it would happen in the next six weeks and that the merger of the two companies would allow Verso bondholders to make a 70% profit on the investment.
Brokers have an obligation to make investment recommendations that are consistent with their clients risk tolerance, net worth, investment objectives and experience in the market. Unsuitable recommendations would include not researching a potential client before making a recommendation.
At the time of the cold call, the Verso bonds carried an average rating of “B” from the major credit rating agencies. Bonds with a “B” rating are labeled as “highly speculative”. According to the Arkansas Securities Commissioner case documents, Elmazi failed to disclose the risks associated with the purchasing of a highly speculative bond or “junk bond”. Elmazi also allegedly misrepresented the safety of the bond and failed to conduct a proper suitability analysis with the Securities employee to determine if the bonds were suitable for the investor prior to recommending them for purchase.
Broker dealers are required to perform adequate due diligence on any investment they recommend and to ensure that all recommendations are suitable for the investor. Firms that fail to do so, may be held responsible for any losses in a FINRA arbitration claim.
The information provided is publically available through http://www.securities.arkansas.gov/!userfiles/Niaz%20Elmazi%20Complaint%20S-12-0102.pdf, and is being provided by The White Law Group.
The White Law Group is a national securities arbitration, securities fraud, and investor protection law firm with offices in Chicago, Illinois and Vero Beach, Florida.