Sonn Law Group is investigating claims regarding former Registered Principal Mark Christopher Hotton (CRD #2346843, West Islip, New York), who has been barred from association with any FINRA member in any capacity. See FINRA Case #2009017408101. Hotton pled guilty in July to two frauds, one involving the supposed financing of a Broadway production of a musical version of “Rebecca.” From November 2005 until February 2009, Hotton was associated with Oppenheimer & Co., Inc. Thereafter, Hotton was associated with American Capital Partners, LLC (January 2009 through August 2010), Alexander Capital, LP (September 2010 through March 2012), and Obsidian Financial Group, LLC, (February 2012 through May 2012).
Without admitting or denying the allegations, Hotton consented to the described sanction and to the entry of findings that he improperly used and converted millions of dollars of customer funds, without the customers’ knowledge or consent, for his own use and benefit. In particular, Hotton misappropriated $5,932,000 through various schemes including fictitious investments, forged letters of authorization, and wiring money from customer accounts to the accounts of other clients who were demanding payment. In addition, Hotton caused at least $2,584,078 more to be wired from the brokerage accounts of his Oppenheimer customers to his outside business activities and other entities and individuals with whom Hotton was affiliated.
Hotton defrauded his customers through the use of various fraudulent investment vehicles, including Pioneer Ventures, Atlantic Senior Associates, Trinity Management Consulting Corp., Bon-Ton Department Stores. Hotton also either was employed by or accepted compensation from the following business entities: Atlantic Senior Associates, LLC; Coastal Partners Associates, LLC; Coastal Partners Storage, LLC; Pioneer Venture, LLC; Trinity Management Consulting Corp.; LAN Utilities Electric, Inc.; and Canyon Brothers Construction LLC.
FINRA found that Hotton provided the customers with fabricated statements for nonexistent accounts and false written statements about the value of their investments. Hotton also forged the customers’ signatures on letters of authorization causing the transfer of funds, which he converted. Hotton falsified net worth and investment objective information on the customers’ account forms, falsely increasing their net worth and mischaracterizing their investment objective as speculation. In addition, Hotton made verbal and written misrepresentations to another customer regarding his recommendation to invest in a nonexistent reverse convertible note and regarding the source of funds for money that was returned to the customer.
FINRA also found that Hotton fabricated order tickets for put option trades that were never placed, as well as several memos to employees at his firm relating to fictitious put option orders. Hotton fabricated and provided to the customer a series of misleading summaries that overstated the value of the customer’s account by several million dollars, misstated profit or loss on particular trades, and included several fictitious put option trades. Hotton provided other customers with letters that falsely and misleadingly described the principal balance, timing and amount of interest payments, and accrued interest for their purported investments in nonexistent notes.
FINRA further found that Hotton exercised control over customers’ brokerage accounts at his firm, recommended and/or executed transactions that were excessive and unsuitable in light of the customers’ investment objectives, risk tolerances and financial situations, and acted with the intent to defraud or with reckless regard for the customers’ interests and for the purpose of generating commissions, willfully violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Hotton recommended risky and speculative investments in violation of his customer-specific suitability obligation. When Hotton recommended investments in leverages and inverse ETFs to his customers, he failed to understand the features of leveraged and inverse ETFs, and as a result, failed to satisfy the reasonable basis suitability requirement in connection with his recommendations.
Moreover, FINRA found that Hotton executed numerous unauthorized trades in customers’ accounts. The customers never gave written authorization to Hotton to exercise discretionary power in their account, nor did the customers give Hotton verbal time and price discretionary power. Yet Hotton executed transactions in the customers’ accounts without their prior knowledge, consent or authorization. Hotton also loaned $250,000 to firm customers in contravention of his firm’s written supervisory procedures and without his firm’s approval.
In addition, FINRA determined that Hotton falsely testified on numerous topics and provided false information and documents to FINRA. Hotton further failed to provide prompt written notice to his firm of certain outside business activities, that he was employed by entities or accepted compensation from them, and his involvement with the entities was outside the scope of his employment relationship with the firm. Hotton also submitted numerous amended Forms U4 that willfully failed to disclose: the material fact of his engagement in the outside businesses while he was employed by the firm; the filing of an arbitration commenced against him by customers; and the commencement of federal action against him by the customers, or the temporary restraining order granted in that action.
Pursuant to FINRA Rules, Oppenheimer, American Capital Partners, Alexander Capital, and Obsidian Financial Group were responsible for properly supervising Hotton’s activities during the time Hotton was registered with each respective firm. Therefore, Oppenheimer, American Capital Partners, Alexander Capital, and Obsidian Financial Group may be liable for investment or other losses suffered by Hotton’s customers.
If you were a client of Mark Hotton or Oppenheimer, and have suffered investment losses or financial irregularities, please contact Sonn Law Group to explore your legal options. Sonn Law Group is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies. To learn more, please call us at 844-689-5754 or complete our “contact form.”