Securities Arbitration Lawyer Blog
FINRA has censured and fined Miami-based brokerage Primary Capital, LLC (“Primary”) over supervisory failures and advertising violations related to its EB-5 business. The EB-5 Immigrant Investor Program is overseen by the United States Citizenship and Immigration Services (USCIS) and was created by Congress in 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors.
According to FINRA, Primary acted as finder or placement agent for at least 70 EB-5 offerings during the period of December 2013 through February 2019.
If you have suffered investment losses with Primary Capital, LLC, contact New York securities arbitration lawyers Iorio Altamirano LLP for a free and confidential evaluation of your account.
Iorio Altamirano LLP represents investors nationwide that have disputes with their financial advisors or brokerage firms, such as Primary Capital, LLC.
FINRA Letter of Acceptance, Waiver, and Consent No. 2017053116801
Primary Capital, LLC and FINRA entered into a Letter of Acceptance, Waiver, and Consent (“AWC”) on August 16, 2021, after FINRA alleged that during the period of December 2013 through February 2019, Primary participated in EB-5 offerings without establishing, maintaining and enforcing a supervisory system, including written supervisory procedures (WSPs), reasonably designed to supervise its EB-5 business.
According to FINRA, the firm also failed to reasonably supervise representatives’ use of EB-5 business-related websites between December 2013 and May 2017. During that period, two of Primary’s representatives, who are referred to in the AWC as “RR1” and “RR2,” engaged in EB-5 business through their websites, which contained content that violated FINRA’s advertising rules.
As a result, Primary violated NASD Rule 3010 and FINRA Rules 3110, 2210, and 2010.
Primary Failed to Establish, Maintain and Enforce a System, Including WSPs, Reasonably Designed to Supervise Its EB-5 Business
The EB-5 Program provides foreign investors with a potential avenue to lawful permanent residency in the United States.
Primary first became involved in EB-5 offerings in December 2013 after hiring RR1 and RR2 in December 2013 and January 2014, respectively. Both representatives engaged in EB-5 business through Primary Capital and their respective outside business activities (OBAs) by, among other things, soliciting foreign investors who wished to make an EB-5 investment, recommending specific EB-5 investments to customers, acting as a liaison between the various EB-5 Immigrant Investor Regional Centers (“Regional Centers”) and the investors, and facilitating the transfer of investment funds to the respective Regional Centers. Both RR1 and RR2 also conducted due diligence reviews of EB-5 projects. Over the relevant period, Primary expanded its EB-5 business and hired additional registered representatives to solicit investors in these deals. Primary’s EB-5 business constituted over 50% of Primary’s revenue by 2018. RR1’s and RR2’s EB-5 business was intertwined with the firm’s business. Primary acted as finder or placement agent for at least 70 EB-5 offerings during the relevant period.
Primary’s role on an EB-5 offering was determined by the terms of its agreement with each respective EB-5 issuer. Generally, in its role as a finder, Primary identified and introduced investors to an EB-5 project. In its role as a placement agent, Primary generally conducted a site visit, performed background checks on management, reviewed the business plan, and reviewed and commented on offering materials, investor questionnaires, and the operating agreement for the entity. RR1 and RR2 recommended EB-5 projects to investors, both where Primary acted as placement agent and where Primary acted as finder.
Notwithstanding the intertwined nature of RR1’s and RR2’s EB-5 business and Primary’s EB-5 work, Primary did not have a system in place to reasonably supervise its EB-5 business.
Primary incorrectly characterized aspects of RR1’s and RR2’s EB-5 business as OBAs that the firm was not required to supervise. For example, the firm did not review the electronic communications RR1 and RR2 sent and received through their OBAs, notwithstanding that those communications related to EB-5 business. In addition, Primary failed to update its WSPs to address its involvement in EB-5 offerings until December 2017—four years after it became involved with this business. Even then, the WSPs were not reasonable because they provided only limited guidance to those representatives at Primary who facilitated and participated in EB-5 transactions. The WSPs did not provide guidelines or procedures to registered representatives specifically concerning soliciting customers to invest in an EB-5 project. RR1 and RR2 left the firm in 2016 and 2017, respectively, and Primary is no longer pursuing EB-5 business.
Primary Failed to Establish, Maintain and Enforce a System, Including WSPs, Reasonably Designed to Supervise its Registered Representatives’ EB-5 Related Websites
The firm’s WSPs specified that websites fall within “advertising” for purposes of FINRA’s rules and must be pre-approved. Primary required that representatives obtain advance approval before initiating or making changes to their websites, regardless of whether the website involved securities business.
From December 2013 through May 2017, RR1 and RR2 maintained websites for their EB-5 business. Notwithstanding that its WSPs required it to do so, Primary did not conduct regular supervisory reviews of the websites, which contained content that violated FINRA’s advertising rules.
RR1’s two websites contained statements falsely suggesting that RR1’s activities were endorsed by FINRA or the Securities and Exchange Commission.
A website for RR2’s OBA contained summaries of EB-5 offerings that failed to provide a balanced treatment of the risks and potential benefits of investment, highlighting positive features of six high-end real estate investment opportunities yet failing to discuss the inherent risks associated with such investments, including financing and leasing.
Primary’s Failure to Timely Make Private Placement Filings
FINRA Rule 5123 requires that a member that sells a security in a non-public offering in reliance on an available exemption from registration under the Securities Act of 1933 must: (i) submit to FINRA, or have submitted on its behalf, a copy of any private placement memorandum, term sheet, or other offering documents used in connection with such sale within 15 calendar days of the date of the first sale, or (ii) notify FINRA that no such offering documents were used. Rule 5123 was implemented to “enhance oversight and investor protection” and provide “more timely and complete information about the private placement activities of firms on behalf of other issuers.”
From April 2017 through February 2019, Primary failed to make timely filings with FINRA related to 16 offerings. Instead of filing the offering documents within 15 calendar days of the date of the first sale, Primary filed the offering documents from 90 to 1,056 days after the date of the first sale.
Primary Capital, LLC (CRD#: 127921)
Primary has been registered with FINRA since February 2004. The firm’s office is in Miami, Florida, where it has nine registered representatives. Its main business consists of private placements, mergers and acquisitions, and consulting.
How to Recover Losses or Obtain a Free Consultation
If you have suffered investment losses with Primary Capital, LLC, contact New York securities arbitration lawyer Jorge Altamirano of Iorio Altamirano LLP at jorge@ia-law.com or toll-free at (855) 430-4010 for a free and confidential evaluation of your account.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. We pursue FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by financial advisors and brokerage firms.