According to a FINRA disciplinary action announcement, John Warren DuBrule (CRD #1223724, Orlando, Florida) recently submitted an Offer of Settlement in which he was barred from association with any FINRA member in any capacity.
Without admitting or denying the allegations, DuBrule consented to the sanction and to the entry of findings that he willfully engaged in securities fraud by knowingly or recklessly causing the distribution of summary quarterly statements that contained false information about the valuation of a hedge fund. The findings stated that DuBrule knowingly inflated the value of the fund’s assets on its quarterly statements by, among other things, including the face value and promised interest of defaulted promissory notes as assets of the fund, and he falsely inflated the value of investors’ interests in the fund. DuBrule made materially false and misleading statements and omissions to investors to entice them to re-invest additional funds. DuBrule’s member firm granted him permission to engage in this outside business activity. DuBrule failed to disclose that the valuation of the fund was based on defaulted promissory notes and promissory notes that had been cancelled. The summary quarterly statements contained false and misleading statements that claimed the fund utilized the services of an independent firm to prepare statements and tax reports, and that they were prepared in accordance with generally accepted accounting principles (GAAP).
The findings also stated that DuBrule and his wife invested a total of $88,554 in the fund and withdrew a total of $92,405, relying on the inflated value of their investments in the fund. DuBrule misappropriated investor funds by withdrawing the funds despite knowing that the promissory notes had been cancelled and the value of the fund’s assets had decreased substantially. Investors deposited $3.8 million into the fund, based in part on the fraudulent misrepresentations and omissions in the summary quarterly statements. The findings also included that DuBrule and his colleague withdrew a quarterly management fee from the fund. DuBrule knew or was reckless in not knowing that they inflated the value of the fund’s assets. By using the unsupported and inflated value of the fund to calculate the management fees, DuBrule knew or was reckless in not knowing that they were withdrawing significantly more than the .5 percent maximum quarterly fee, based upon the true and accurate value of assets in the fund. As a result, DuBrule and his colleague withdrew $141,632 of excess fees from the fund, which came directly from what remained of the capital accounts of the fund’s investors. FINRA found that despite knowing that a member of the firm’s staff had forged a significant but unknown number of Deposit Securities Request forms and caused numerous unregistered penny stocks to be deposited into firm customer accounts absent supervisory review, DuBrule failed to conduct any investigation to determine the scope of the forgeries and unsupervised penny stock trading.
For the full findings, see FINRA Case #2011027666902.
According to his FINRA Broker Report, DuBrule was registered with Merrimac Corporate Securities from September 2008 through September 2013.
The foregoing information, which is all publicly available on FINRA’s website, is being provided by The White Law Group.
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