Finra has barred a broker-dealer and its founder for allegedly defrauding a number of current and former NFL and NBA players out of nearly $14 million as part of a Ponzi scheme
Finra has barred a broker-dealer and its founder for allegedly defrauding a number of current and former NFL and NBA players out of nearly $14 million as part of a Ponzi scheme.
The Financial Industry Regulatory Authority Inc. expelled Success Trade Securities, an online brokerage, and its founder, Fuad Ahmed, for raising money for the company parent company, Success Trade Inc., through purportedly fake promissory notes.
The notes typically had a 12.5% interest rate and had a term of 36 months, according to Finra. Because of the financial condition of the parent company, there was little chance they would be paid back, Finra said. Instead, the funds went to pay Mr. Ahmed's personal expenses, including the lease on a Range Rover and balances on personal credit cards and clothes, Finra alleged.
“No reasonable investor would have purchased the notes if the investor had known the truth about the parent company's financial situation,” Finra said in its decision.
He used $4 million from the notes to pay off early investors, according to Finra. The total amount of fraudulent notes he sold was $19.4 million.
The 59 people who invested with Mr. Ahmed were mostly “unsophisticated investors,” primarily recent college graduates starting a career as professional athletes, according to Finra.
Finra referred to the 59 victims only by initials.
A report from Yahoo Sports last year noted that clients who bought Success Trades' notes included Detroit Pistons guard Brandon Knight, Cleveland Browns cornerback Joe Haden, San Francisco 49ers tight end Vernon Davis, former Washington Redskins running back Clinton Portis and Chicago Bears defensive end Adewale Ogunleye.
When the notes became due, Mr. Ahmed attempted to persuade the investors to extend the terms, in some cases promising that the company would be listing on a European stock exchange soon.
Mr. Ahmed raised money for the notes through Jinesh Brahbhatt, a broker who also ran a registered investment advisory firm known as Jade Private Wealth Management. The firm targeted professional athletes who were waiting to be drafted, according to Finra.
Success Trade then paid Mr. Brahbhatt $1.25 million from the funds, according to the decision. Mr. Brahbhatt was barred in November for failing to testify in the case against Success Trade.
“There are a lot of elements about that which are in dispute, including whether those were payments or loans,” said Mr. Brahbhatt's attorney, Alan Futerfas. “We were not participants in this proceeding, so we did not have an opportunity to put evidence before the panel or address assertions made by either Finra personnel or Fuad Ahmed.”
An attorney for Mr. Ahmed, William C. “Skee” Saacke, did not immediately return a request for comment.
Finra had originally filed a complaint against Success Trade in April 2013 and issued a cease-and-desist order preventing the firm from raising additional funds at that time. The brokerage was still active online, however, as of press time.
Mr. Ahmed had been registered as a broker for 19 years, according to Finra.
He had served at two expelled firms, including the infamous Stratton Oakmont Inc., where Finra said he met Mr. Brahbhatt. He was at Smith Barney Inc. for just over a year before leaving to start Success Trade Securities in 1998, according to Finra registration records.
A message left for Mr. Ahmed with an employee at Success Trade was not immediately returned.
As part of its decision, Finra said Mr. Ahmed must repay investors $13.7 million.
The restitution must be made by Sept. 11, 2014, according to Finra's decision. Mr. Ahmed has 45 days from the issuance of the decision to appeal the matter to Finra's National Adjudicatory Council.
A representative of the Securities and Exchange Commission could not be reached to address the issue of other actions that might be taken against Mr. Ahmed or Mr. Brahbhatt.
Success Trade Inc., the parent company of the expeled brokerage, owned two other online brokerage platforms, including Just2Trade.com and LowTrades.com, which offer trades with commissions as low as $2.50. Just2Trade was ranked 17th in a ranking of online brokers by Barron's in March 2012, according to its website.
