After barring adviser former MAM Securities, Inc. representative and MAM Wealth Management, LLC investment adviser Rafael R. Sanchez of Sherman Oaks, California for engaging in unethical conduct relating to three elderly customers, a FINRA arbitration panel took the sanctions a step further, ordering Sanchez pay five investors $4.6 million in damages for misconduct related to a risky real-estate fund.
According to Sanchez's Letter of Acceptance, Waiver and Consent ("AWC") that resulted in his permanent banishment from the securities industry, investigators discovered that Sanchez engaged in unethical conduct and misuse of customer funds, including the opening and transfer of funds to accounts Sanchez solely controlled without permission or authority.
The findings further state that in dealing with his elderly clients, Sanchez failed to provide account information or explanations for signature requests, resulting in more than one instance of a customer not understanding or authorizing actions Sanchez was taking.
For instance, Sanchez allegedly opened an account in the name of an 80-year-old widowed customer who knew "very little" about investing and was unfamiliar with computers, including the internet, e-mail addresses, user IDs or passwords—indeed, that specific customer did not even own a computer. Nonetheless, Sanchez created the online account but did not provide any of that information to his customer.
According to the investigation, Sanchez subsequently transferred a total of $140,000 from the customer's personal bank account to the online account Sanchez opened. The report states the customer did not have knowledge of and accordingly did not authorize the opening and transfer of funds to this online account.
Furthermore, the investigation found that Sanchez failed to issue a promissory note or other document noting the debt when soliciting loans from his customers, failed to disclose bankruptcy filings and IRS tax lien and failed to disclose an outside business activity.
This outside business activity that Sanchez owned was called "Wealth Management Associates Fiduciary Trust Services" and, according to the investigation, Sanchez made false representations to multiple clients that he was a partner and part-owner of MAM Wealth in order to solicit bill paying and other service purchases for his Trust Services company.
Sanchez then allegedly failed to make timely payments on behalf of multiple customers in connection with Trust Services, even destroying a client's financial records without permission.
It was this issue—Sanchez's failure to make timely payments—that allegedly crept into Sanchez's participation in the MAM Wealth Management Real Estate Fund and resulted in the FINRA arbitration panel's decision to order payment for damages totaling $4.6 million.
According to the arbitration case, Sanchez served as Chief Financial Officer of the Real Estate Fund, which made real-estate loans that were secured by second mortgages.
The findings state that this fund stopped making any sort of distribution to investors nearly four years ago.
The SEC claimed that Sanchez marketed the fund to his customers as a "safe and liquid investment" even though the fund's prospectus indicated it was "speculative" and high-risk in nature.
The $4.6 million award is expected to be paid by Sanchez's insurer, Scottsdale Insurance Company, subsidiary of Nationwide Mutual Insurance Company.
if you have invested with Rafael R. Sanchez or with any broker or firm whose misrepresentations, unauthorized fund transaction activity or failure to make distributions in violation of prospectus or other documentation—or whose failure to issue such documentation [e.g., promissory notes]—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.
News: Ex-Adviser Liable for $4.6M in Damages to Actress, Four Others (The Wall Street Journal)