Finra complaint includes failure to disclose outside business activities, failure to disclose outside accounts, private securities transactions (PSTs), structuring of cash deposits, and making false statements.
Former Arete Wealth Management brokers Gurpreet Chandhoke (CRD#: 4999369) and Stephen F. Shea (CRD#: 3274649) have been named as respondents in a FINRA Enforcement Division complaint dated August 12, 2019, alleging five causes of action including: failure to disclose outside business activities, failure to disclose outside accounts, private securities transactions (PSTs), structuring of cash deposits, and making false statements.
Chandhoke and Shea have operated as partners as registered brokers, most recently with Arete Wealth Management (2016–2017) of Orinda, California; Penserra Securities (2015–2016) of Orinda, California, and Gordian Investments (2012–2014) also of Orinda, California.
First Cause of Action
Failure to Disclose Outside Business Activities
In the FINRA complaint, Shea and Chandhoke were named as respondents alleging they formed two entities together with the intent of engaging in non-securities business activities, and failing to provide prior written notice regarding those outside business activities to their member firms.
Some of Chandhoke and Shea’s activities allegedly included creating and distributing offering materials, soliciting investors, opening and maintaining a bank account on behalf of one entity, and making a down payment for a piece of real property.
According to FINRA records, Chandhoke later engaged in two additional non-securities business activities without providing prior written notice to his firms.
The complaint also alleges that contrary to their member firms’ written policies (WSPs), Chandhoke and Shea failed to disclose outside accounts opened at another FINRA member firm.
- FINRA records also state that between approximately April 2014 and October 2015, Chandhoke and Shea together formed two entities with the intent of engaging in non-securities business activities, and failed to provide prior written notice regarding those outside business activities to their employer member firms, Gordian and Penserra.
- In April 2014 — While registered with Gordian Investments, Chandhoke and Shea formed AlesiaTec, a data analytics technology company. Both Chandohoke and Shea participated in soliciting investors for AlesiaTec, per court records.
Second Cause of Action
Failure to Disclose Outside Accounts
- The complaint alleges that between May 2016 and October 2016, while associated with Arete, Chandhoke failed to provide Arete with prior written notice identifying Chandhoke holdings as an outside business activity.
- May 2016 Chandhoke secured $250,000 loan for Chandhoke Holdings and then used that as a means by which to obtain credit from another firm. The court record states that at the time Chandhoke intended to use the proceeds from the line of credit to allow him to purchase securities in another account. Chandhoke also falsely indicated that the purpose of the account was to finance business operations or assets.
Other Outside Business Activities
- In May 2016 while Chandhoke was associated with Arete, he opened three accounts in the name of Chandhoke Holdings, which he did not report to Arete.
- In October 2014, Chandhoke and Shea established PFU, LLC as a holding company through which they reportedly intended to make real estate investments and lease property.
- Both Chandhoke and Shea participated in business activity for PFU including opening and maintaining a bank account on behalf of PFU and making a down payment for a piece of real property In February 2015. Both failed to notify their member firm, Penserra, of their association with PFU.
- Between May 2015 and October 2015, while associated with Penserra, Chandhoke was on the board of Relativity Media, “a privately held Hollywood studio with a revolutionary, fully-integrated and diversified global media platform.” Court records state that Chandhoke failed to notify Penserra of his position on the board.
Third Cause of Action
Private Securities Transactions
The complaint further alleges that Chandhoke and Shea participated in PSTs totaling $9,902,425 without providing written notice of those transactions to their firms prior to their participation.
- Between March 2014 and March 2017, while associated with Gordian and Arete, Chandhoke and Shea reportedly participated in private securities transactions totaling $9,902,425 without notifying their employer member firms, Gordian and Arete.
- November 2014 — Chandhoke created Chandhoke Holdings, LLC, a single-member LLC wholly owned by Chandhoke. Chandhoke allegedly took out priority credit line in name of Chandhoke Holdings and used it in violation of firm policy to purchase, carry, and trade in securities.
AlesiaTec Series Seed PSTs
- Between July 2014 and September 2014, while registered with Gordian, Chandhoke and Shea participated in the sale of Series Seed interests of Alesia Tec to four investors, totaling $459,900.
The VII Peaks BDC Investors PSTs
- During 2011 and 2012, Chandhoke and Shea launched a series of investment funds called the VII Peaks Co-Optivist Funds as part of a joint venture between VII Peaks Capital and a managing broker dealer, KBR Capital Markets, LLC.
FINRA hearing records indicate Chandhoke participated in the VII Peaks BDC Investors transactions by, among other things, co-creating, managing and marketing the offering, and signing subscription agreements.
Records state Chandhoke and Shea failed to provide written notice to their member firm, Gordian, of the VII Peaks Investors BDC transactions.
- Between December 2015 and May 2016, while Chandhoke and Shea were associated with Penserra and Arete, they opened four accounts under the names of AlesiaTec and VII Peaks Capital. Both Chandhoke and Shea had financial interest in each account, in violation of both Arete and Penserra’s WSP policies.
- Between March 2014 and August 2014, while associated with Gordian, Chandhoke and Shea participated in 12 private securities transactions involving Class A shares of VII Peaks BDC Investors totaling $4,362,500 in which investors exchanged previously held interests for new ownership shares,
- According to FINRA records, between March 2014 and May 2014, Chandhoke and Shea participated in 10 additional private securities transactions involving Class B shares of VII Peaks BDC totaling $445,000.
Fourth Cause of Action
Structuring Cash Deposits
- Between June and Sept. 2016, Chandhoke allegedly deposited $72,950 in cash into four separate bank accounts under his control in increments of less than $3,000. The deposits were made at automated teller machines in the Los Angeles and San Francisco Bay areas and were structured in amounts below $10,000, the limit which would have triggered the financial institution to file currency transaction reports.
- In addition, the complaint alleges that from September 2012 to September 2014, Chandhoke structured 37 cash deposits made into four separate bank accounts in order to evade federal reporting requirements.
Fifth Cause of Action
- Court records allege that in May 2016 Chandhoke completed a federal reserve form T-4 attesting that no part of Chandhoke Holdings would be used as a credit line to purchase, carry, or trade in securities, which was a false attestation
- In June 2016 Chandhoke made multiple wire transactions totaling approximately $480,000 between Chandhoke Holdings LLC and private accounts in his name in order to to purchase, carry, or trade in securities.
Enforcement actions order that Chandhoke and Shea disgorge fully “any and all ill-gotten gains,” and make full and complete restitution, together with interest, and bear all attorney’s fees, in accordance with FINRA Rule 8330.
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