New Jersey Bureau of Securities
The New Jersey Bureau of Securities is a state securities regulatory agency responsible for oversight of New Jersey State broker dealers and licensed investment advisors. They are also charged with protecting investors against investment fraud. In addition to passing and promulgating regulations covering brokers and investment advisors, the New Jersey Bureau of Securities (“the Bureau”) can also, under its authority, bring regulatory actions against brokers engaged in fraudulent activity. The Chief of the Bureau is charged with oversight of New Jersey Uniform Securities Law, regulating the offer and sale of securities, and has his staff broken down into six units:
- Investment Advisor and Broker Dealer Registration;
- Examinations (Reviews of compliance with New Jersey Uniform Securities Law by Broker dealers licensed in New Jersey);
- Regulatory (Inquiries from staff directed against individual investment advisors or entire broker dealers);
- Enforcement and Complaints (Investment Advisor with a series of customer complaints or involved in a pattern of selling or marketing securities in violation of New Jersey Uniform Securities Law; and
- Investor Education (Material is submitted such as fraud alerts in New Jersey in connection with the sale of securities).
The powers of the Bureau are vast. Under N.J.S.A 49:3-47 to -83, the Bureau can investigate a broker and issue a subpoena for the broker’s appearance. Failure to submit to the Bureau’s subpoena can result in a fine in the form of a civil monetary penalty, issued pursuant to N.J.S.A. 49:3-66.1. The amount of fines that can be offered varies – first violation of New Jersey Uniform Securities Law is $10,000 and a second violation is $20,000. N.J.S.A 49:3-70.1 states that one or more violations may occur at the same time or be part of the same conduct or pattern of conduct.
Failure to appear at a Bureau hearing or respond to Bureau requests for documents and information can result in suspension or, in egregious circumstances, a permanent bar from the New Jersey Securities industry. N.J.S.A. 49:3-58(a) states that the Bureau Chief may by order deny, suspend, or revoke any registration if he finds:
- that the order is in the public interest;
- that the applicant or registrant or, in the case of a broker-dealer or investment adviser, any partner, officer, director, or any person occupying a similar status or performing similar functions, or any person directly or indirectly controlling the broker-dealer or investment adviser has engaged in dishonest or unethical practices in the securities, commodities, banking, insurance or investment advisory business, as defined by rule of the bureau chief; and
- has failed reasonably to supervise his agents if he is a broker-dealer or issuer; the agents of a broker-dealer or issuer for whom he has supervisory responsibility, or his employees who give investment advice if he is an investment adviser.
The Bureau has been responsible for multiple investigations in state securities markets. For instance, on June 15, 2018, the Bureau revoked the licenses of Financial Planning Advisors LLC and its owner for fraud in connection with the sale of unregistered securities to elderly and retired New Jersey investors. The Bureau found that the investment advisor was selling promissory notes and marketing them as backed by a diner or developer. In reality, the investors were receiving personal promissory notes from those investors for huge commissions. On top of that, Financial Planning Advisors failed to disclose its relationship with the business owners and that the diners and developers were also clients of his accounting firm.
The summary penalty issued by the Bureau stated that the investment advisory violated Uniform Securities Laws of the State of New Jersey by:
- Selling and offering unregistered securities;
- Engaging in Fraud;
- Acting as an agent without registration;
- Making untrue statements of material fact and/or omitting to state material facts; and
- Making false and misleading statements to Bureau investigators during an investigative deposition.
The Bureau, in addition to filing charges against independent investment advisors, has also filed charges against national broker dealers. Recently, the Bureau had LPL fined for selling unregistered Real Estate Investment Trusts (REITS). The Bureau fined the firm for marketing REITS which are illiquid and generally considered high risk investments only suitable for investors with a very specific investment profile.
Some of the most recent actions by the Bureau has been in connection with Woodbridge Promissory Notes. Woodbridge was a massive $1.2 billion-dollar Ponzi scheme that marketed promissory notes tied to real estate. The notes pledged a high rate of return with a very short maturity, making them very attractive, especially to senior investors who were burnt out by historic lows in the bond markets. The Bureau conducted dozens of investigations against investments advisors who sold Woodbridge. The Woodbridge securities were not registered with the Bureau. In one action, the Attorney General order a New Brunswick based registered investment advisor, Jeffrey Mitchell Isaacs and JB Financial Resources, to pay $750,000 for selling at least $7.1 million Woodbridge Securities to 26 investors throughout New Jersey. According to the Bureau, Isaacs netted $195,000 in sales commissions from Woodbridge. According to the Summary Penalty Order by the Bureau, Isaacs marketed Woodbridge as short-term, safe investments, secured by real estate that paid an annual interest rate of 5% or more. In reality, the securities were unregistered, unsecured, and part of an alleged $1.2 billion Ponzi scheme. Woodbridge Funds are securities as defined in N.J.S.A. 49:3-49(m) of the Securities Law and were required by N.J.S.A. 49:3-60 to be registered with the Bureau, federally covered, or exempt from registration.
If you have been the subject of a regulatory inquiry by the New Jersey Bureau of Securities or are an investor who has a broker who has been fined, barred, or subject to a Bureau investigation, the securities attorneys of Lubiner Schmidt and Palumbo would like to hear from you. Please contact our office for a free consultation.