The Financial Industry Regulatory Authority (FINRA) fined registered principal Christipher Lynn Belonge $54,819 and suspended Belonge until September 6, 2012 for failure to supervise representatives and brokers and for making unsuitable recommendations to customers.
A registered representative and general securities principal with Pavek Securities, Inc., Belonge consented to the FINRA findings that beginning in 2007, he failed to conduct satisfactory due diligence and research on the A&O Capital Appreciation Bonds he and his brokers were selling to clients.
According to FINRA, the A&O Capital Appreciation bonds were general obligation bonds of A&O, and were backed by a pool of underlying life insurance policies. The Capital Appreciation Bonds were purportedly "bonded," or reinsured, with Provident Capital Indemnity, Ltd. ("Provident"), an insurance company located in Costa Rica, acting as the bonding company that would assume ownership of the underlying policy and pay the death benefit to the investor if the insured exceeded their projected life expectancy. A&O promised that if the insured lived beyond the investment term, the reinsurance company would pay the agreed-ta-minimum rate of return and assume ownership of the underlying insurance policy. The reinsurance feature provided A&O with a way to distinguish its investment product from other life settlement investments. As it turned out, beginning in 2006, the principals of A&O were misappropriating their investors' funds for their own benefit.
FINRA found that Belonge failed to conduct the necessary reasonable basis suitability inquiry to determine whether the A&O bonds were suitable for any type or class of investors. He "missed or ignored critical issues raised by the offerings of A&O Capital Appreciation Bonds that, had they been reviewed objectively, would have led to additional cause for concern about the bona fides of A&O and its principals." In one instance, an A&O principal had been charged with felony forgery in 2004.
Pavek Securities' brokers sold the A&O Capital Appreciation bonds by way of private placement memorandums. This method of sale requires all investors be "accredited investors." According to the SEC, an individual is considered accredited investors if he or she is a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person. Alternatively, an individual may be considered an accredited investor if he or she has income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.
FINRA found that on behalf of Pavek Securities, Belonge approved the sales of several A&O Bonds to investors who were not accredited investors.
Belonge also personally sold the A&O bonds to several clients. Since Belonge failed to successfully conduct the reasonable basis suitability analysis, FINRA found his sale of the bonds to his clients also failed the requirement he reasonably determine the bonds were suitable for his specific clients.
Belonge received compensation totaling $34,819 for the sale of the A&O bonds while customers whose interests he was supposed to protect lost $315,352.
If you invested with Christipher Lynn Belonge, Pavek Securities, A&O Capital Appreciation Bonds or another broker-deal or firm you believe has not done their research, resulting in unsuitable advice or investment in a fraudulent scheme that has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.