Sandlapper Securities LLC

Date:

July 16, 2020

Type of alert:

FINRA Complaint  

On June 23, 2020, the National Adjudicatory Council (NAC) held findings and affirmed sanctions regarding a Complaint filed by Financial Industry Regulatory Authority (FINRA) Department of Enforcement against Sandlapper Securities LLC and its vice president and chief executive officer (collectively referred to as the “Respondents”) for misrepresenting and omitting material facts regarding sales of fractional interests in saltwater disposal wells, among other things.

Sandlapper, a broker-dealer based in Greenville, South Carolina, has been a FINRA member firm since 2006 and has approximately 60 registered representatives in 13 branch offices. According to the Decision, Sandlapper represented that it has “significant experience in the acquisition and operation of commercial real estate, business entities, finance and management as well with alternative financial instruments,” and its registered representatives were focused on “replacement property solutions” such as IRS Section 1031 real estate exchanges.

FINRA’s Complaint also named Trevor Gordon and Jack Bixler as respondents. Trevor Gordon is the founder and majority owner of Sandlapper and serves as its CEO. Jack Bixler is a principal, vice president, and minority owner of Sandlapper. Gordon and Bixler have been registered with a FINRA member firm since 1997 and 1971, respectively. Both brokers were registered with Sandlapper as general securities representatives with Sandlapper since 2006 until the firm was expelled on June 30, 2020.

FINRA Department of Enforcement alleges in the Complaint that the Respondents purchased fractional interests (i.e. an ownership share in real estate) in several saltwater disposal wells from a disposal well operator (known as “RBJ” in FINRA documents) in the Permian Basin in Texas. Hydraulic fracturing of shale gas well sites produces millions of gallons of a hazardous waste known as “saltwater,” and, when left untreated to remove impurities is pumped out and trucked to saltwater disposal wells for containment. The saltwater can be profitable in two ways: 1) the disposal well operator can charge a disposal fee; and 2) operator can skim the oil on the top of the water to sell before injecting the saltwater into the containment well. Operators can then sell the fractional interests at a cost that assumes 75% of the anticipated cost to develop the well and the remaining 25% issued as compensation to the well developer and operator.

In March 2011, Gordon, Bixler, and two other individuals formed Tiburon Saltwater Reclamation Fund I (TSWR Fund) and the Fund’s manager, TSWR Fund Management, LLC, to acquire interest in saltwater disposal wells at a fixed price between $45,000 and $55,000 per 1% interest from RBJ and communicate and market the interests for resale to investors. In June 2011, Gordon, Bixler and other individuals that called themselves the “Tiburon Team” created TSWR Development, LLC, the vehicle they used to acquire and resell RBJ’s saltwater disposal wells as “real estate.” TSWR Development also sold “direct working interests” to individual investors and small funds by Sandlapper representatives and other broker-dealers in the same selling group. Between August 2011 and December 2014, approximately 170 investors purchased TSWR Fund units for close to $12.5 million.

In September 2017, FINRA Department of Enforcement filed a seven-case complaint that the Respondents violated securities industry rules as follows:

  1. The Respondents willfully defrauded the investment fund by charging undisclosed, excessive markups through an entity between the fund and well operator. For example, In October 2012, Gordon and Bixler directed the TSWR Fund and TSWR Development to purchase a percentage of a well even though they could only pay the interest on this well when it resold a portion of the interest at a markup and borrowed from individual investors in the Fund that Gordon and Bixler solicited.
  2. Gordon and Bixler breached fiduciary duties of loyalty and care to the investment fund, in connection with the Fund’s purchases of the saltwater disposal well interests.
  3. Gordon and Sandlapper committed securities fraud by charging investors excessive markups when selling saltwater disposal well interests between late 2014 and November 2015.
  4. Gordon committed securities fraud by charging excessive markups when selling the saltwater disposal well interest as “real estate” to investors between January 2013 and November 2015.
  5. Gordon and Bixler willfully caused TSWR Development to act as an unregistered securities dealer.
  6. Gordon and Sandlapper failed to establish and implement supervisory procedures adequate to address the conflicts of interests inherent to the sales transactions.
  7. Gordon and Sandlapper failed to supervise private securities transactions.

In November 2018, an Extended Hearing Panel concluded that the Respondents engaged in the misconduct charged by FINRA Department of Enforcement and barred Gordon and Bixler, expelled Sandlapper, and ordered the Respondents to pay over $8 million in restitution. The June 23, 2020 Decision by the National Adjudicatory Council affirmed the Hearing Panel’s decisions and imposed additional appeal costs. According to their FINRA BrokerCheck reports, Bixler and Gordon have pending customer disputes alleging unsuitable recommendations, negligence, common law fraud, breach of fiduciary duty, failure to supervise. and financial elder abuse, among other things.

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