FINRA suspended San Mateo, California broker and branch manager Walter Rae Chao and fined him $30,000 for participating in unauthorized private securities transactions while he was associated with LPL Financial. Chao specifically sold away from LPL by soliciting investments from LPL clients to purchase interests in a Facebook special purpose vehicle (SPV), which an outside firm had created in order to purchase pre-initial public offering shares (the Facebook IPO).
FINRA also ordered Chao to retest and re-qualify as a General Securities Principal prior to assuming such a supervisory role in the future.
According to the findings, Chao knew of the requirement to first gain approval from LPL before soliciting the Facebook purchases and accordingly requested approval from the firm. However, when LPL denied Chao's request, he nonetheless introduced at least 13 LPL Financial customers to this outside firm to invest in the Facebook SPV, generating a total of $1.27 million in investments.
Investigators also allege that Chao took steps to conceal this outside activity from LPL by using an unapproved e-mail address for the illegitimate Facebook sales and related activity, provided false and misleading answers on compliance questionnaires relating to outside private securities transactions, and failed to disclose this unapproved email address.
FINRA charged Chao with providing false and misleading statements to FINRA, noting that Chao communicated to FINRA several statements that were not true, including Chao's false claim that he "simply introduced" clients to the outside firm, and "only after the client had asked about the possibility of investing in Facebook" (FINRA claims the opposite is true, that Chao was the one who raised the idea, not his clients).
During LPL annual audits, the firm additionally discovered and notified Chao that the San Mateo branch Chao managed was improperly using blank signed forms and unapproved email addresses. According to FINRA, Chao failed to take adequate steps to address LPL's concerns, including the issue of using unapproved e-mail addresses, which Chao personally continued to do through his involvement in the improper Facebook IPO sales.
In August 2012, LPL Financial discharged Chao for violating firm policies and procedures relative to private securities transactions away from the firm without authorization (selling away). Chao subsequently joined the firm Purshe Kaplan Sterling Investments, also of San Mateo, CA, before leaving that firm in January 2015. Chao is also listed as the Dragon Financial Group (San Mateo, CA)'s managing partner, a post he has held since August 2012.
If you have invested with San Mateo's Walter Rae Chao in Facebook or with any other broker or financial adviser who has sold away from a firm without permission and in contravention of industry rules, and this or any unauthorized outside business activity has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.