September 21, 2020
Former general securities representative Harry Seth Datys recently consented to a suspension from associating with member firms of the Financial Industry Regulatory Authority (FINRA) to resolve allegations of violating FINRA Rules by recommending numerous trades to customers without having a reasonable basis to do so and making negligent misrepresentations and omissions relating to the sale of the offerings.
According to his FINRA BrokerCheck report, Datys has been associated with eight FINRA member firms since obtaining his license as a general securities representative in 1990. He was most recently associated with WestPark Capital, Inc. in New York, New York (June 2005 – January 2020), and just prior to that, he was associated with Sterling Financial Investment Group, Inc. in Boca Raton, Florida (October 2002 – July 2005). FINRA expelled Sterling Financial in January 2008.
FINRA Department of Enforcement alleges in the Letter of Acceptance, Waiver and Consent (AWC) that from 2012 to 2016, Datys offered and sold 24 promissory notes in connection with two securities offerings by WestPark Capital’s parent company, WestPark Capital Financial (WCF), to 14 customers. Datys raised $2,713,200 through these offerings and obtained $183,000 in commissions.
The Department of Enforcement asserts in the AWC that Datys did not have a reasonable basis to believe these recommendations were appropriate for his customers based on their investment portfolios, nor did he perform due diligence or review the offering documents. The offerings were structured as loans to WCF in exchange for five-year promissory notes with the option for two one-year extension periods, at the parent’s discretion. FINRA asserts that even though the offering documents provided by the firm’s CEO, including the subscription agreement and financial statements, clearly showed red flags about the WCF’s inability to repay the notes, Datys failed to inquire about these red flags. If Datys had investigated the red flags, he would have realized that the WCF had defaulted on its line of credit, entered into successive forbearance agreements with its associated bank, and subsequently defaulted on each agreement, which led to the bank filing a suit against the company and its CEO.
Datys also allegedly made several negligent misrepresentations and omissions of material information. Datys allegedly claimed that noteholders were entitled to share in pro-rata distributions of equity and profits from the firm, which had higher profits and opportunities for greater equity than its parent company, even though the parent company was the actual issuer and source of profits and equity for the noteholders. Datys allegedly misrepresented that noteholders would receive stock or warrants for every deal the firm participated in, including private placements and initial public offerings (IPOs). He also failed to disclose numerous conflicts of interest to his customers, including that the CEO of the parent company had sole discretion as to whether its subsidiaries, including the firm, would make distributions to the parent, and that these distributions constituted the primary source of the parent’s revenue.
Based on the allegations highlighted previously and other allegations made by FINRA Department of Enforcement in the AWC, Datys violated NASD Rule 2310 and FINRA Rules 2111 and 2010. Without admitting or denying the allegations made against him, Datys consented to a 15-month suspension from associating with any FINRA member firms in any capacity and a $20,000 fine.
Datys’ FINRA BrokerCheck report reveals that he has numerous disclosures, including tax liens, customer disputes, and other regulatory proceedings. The customer disputes listed within the past ten years alleged excessive and unsuitable trading, false and misleading statements, negligence, and breach of fiduciary duty, among other things. Settlement amounts ranged from $7,000 to $400,000. His regulatory disclosures include allegations initiated by the New Jersey Bureau of Securities for actively conducting securities business after his registration was revoked and soliciting and offering the sale of unlicensed securities and securities fraud initiated by the Colorado Division of Securities.
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