A complaint filed by the Financial Industry Regulatory Authority Inc. alleges that Greenville-based Sandlapper Securities defrauded investors by selling investments in saltwater disposal wells at excessive undisclosed markups through a development company it controlled. But Sandlapper Securities CEO Trevor Gordon called the allegations “bull—-.”
“It’s a five-year witch hunt by an organization that operates with absolute impunity,” Gordon said.
FINRA is a self-regulatory organization authorized by Congress to protect investors by making sure the nation’s broker-dealers and brokers comply with securities laws and regulations.
In a complaint filed on Sept. 29, FINRA alleges in 2011 Gordon, Jack Bixler, president of the capital markets division of Sandlapper, and two former registered representatives formed a fund to invest in saltwater disposal wells, which are used to get rid of water collected as a byproduct of oil and gas production. Shortly after starting the fund, they formed a development company to facilitate the firm’s investment in saltwater wells, the complaint said.
According to FINRA, between December 2012 and July 2013, Gordon and Bixler used the development company to buy pieces of saltwater disposal wells at undisclosed markups ranging from 161 percent to 270 percent.
“Gordon and Bixler interposed their development company between the fund and the best available market for interests in two wells. The fund had the resources to directly purchase interests in these wells. But instead, Gordon and Bixler had their development company purchase interest in the wells and sell those interests to the fund at undisclosed, excessive markups,” the complaint said.
The complaint also alleged that beginning in January 2013, Gordon used the development company to “extract ill-gotten profits from retail investors who purchased interests in individual saltwater disposal wells outside the fund.” According to the complaint, the development company bought the interests and resold them to retail investors, sometimes through Sandlapper, for markups ranging from 67 percent to 376 percent.
“In overseeing all the Firm’s sales activities, including sales of fund interests and interests in individual saltwater disposal wells, Gordon labored under numerous and obvious conflict of interests,” the complaint said. “Nonetheless, the Firm failed to adopt or implement an alternative supervisory structure for offerings where Gordon was conflicted.”
The complaint said the markups totaled more than $8 million.
FINRA’s Department of Enforcement is asking that Sandlapper, Gordon, and Bixler make full restitution plus interest.
Gordon said the development company is not a securities brokerage firm and the FINRA complaint is “completely retaliatory” by an organization “that wants to have a larger scope than they do.”
“The alleged complaint is framed in a manner so to do maximum damage,” Gordon said. “I look forward to my hearing. The complaint is off base and out of bounds. It’s nothing but slandering me, my partner, and my firm. I will win my hearing and then try to regain my reputation.”
Gordon said FINRA has come under fire recently for a lack of transparency.
“It’s an organization that operates on member revenue, licensing fees, and fines,” he said. “There’s no real due process. They can hold their licenses over your head. They are not a fair organization, but we’re bound to work with them.”
Investment News reported in September that FINRA issued more than 1,400 disciplinary actions and barred more than 500 brokers from the industry last year.
FINRA spokeswoman Michelle Ong said Sandlapper has 30 days to answer the complaint and, after a period of discovery, a hearing will be held before a panel. Gordon said he expects the hearing to be held next year.