Ace Diversified Capital, Inc. (CRD® #41768, San Gabriel, California) and Lynnwood Jen (CRD #2198343, Registered Principal, Anaheim, California) recently submitted a Letter of Acceptance, Waiver and Consent in which the firm and Jen were fined $25,000, jointly and severally, and Jen was suspended from association with any FINRA member in any principal capacity for 15 business days. Without admitting or denying the findings, the firm and Jen consented to the described sanctions and to the entry of findings that they failed to establish, maintain, and enforce a supervisory system and written supervisory procedures (WSPs) reasonably designed to achieve compliance with applicable laws, rules and regulations concerning the sale of interests in private placements. The findings stated that the firm, acting through Jen as its chief compliance officer and president, executed an agreement for marketing and selling interests in Medical Capital Holdings, Inc., a Regulation D offering of promissory notes, and sold to customers $677,262 of the notes MedCap issued; these sales generated approximately $30,476 in commissions, of which $21,727 were received by the registered representatives who sold the MedCap notes. The findings also stated that at the time of the MedCap sales, the firm’s membership agreement did not permit it to engage in the sale of any private placements, and by selling the notes, the firm effected a material change in its business operations without applying for FINRA’s approval to do so. The findings also included that Jen was responsible for ensuring that the firm established, maintained and enforced a supervisory system and/or WSPs reasonably designed to achieve compliance with applicable laws, rules and regulations; and although the firm was not approved to sell interests in private placements, it maintained WSPs pertaining to the sales of private placements.
FINRA found that these WSPs were inadequate, and in addition to the firm’s deficient WSPs, the firm, acting through Jen, failed to conduct adequate due diligence on the issuer’s offering; for instance, Jen did not research the issuer’s past performance. FINRA also found that Jen reasonably should have known that the issuer had defaulted on its earlier notes offerings and that the private placement memorandum (PPM) misrepresented the issuer’s past performance; consequently, Jen failed to take reasonable steps to ensure that the firm’s registered representatives disclosed those missed payments to investors and prospective investors in the offering notes.
The suspension was in effect from May 2, 2011, through May 20, 2011.
This information which is publicly available on FINRA’s website has been provided by The White Law Group, LLC.
If you have questions about investments you made with Ace Diversified Capital, Inc., the securities attorneys of The White Law Group may be able to help. To speak with a securities attorney, please call the firm’s Chicago office at 312/238-9650.
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