Brokerage Allegedly Defrauded Investors, Misrepresented Relationship with City of Jacksonville
On August 4th, 2017, FINRA’s Department of Enforcement filed a complaint against CSSC Brokerage Services, Inc. (CSSC) and its principal and CEO Eric S. Smith. Within the document, the Department of Enforcement alleges that Mr. Smith and CSSC defrauded investors by materially misrepresenting the company’s financial condition in a bridge loan securities offering that was presented to actual and prospective investors. The full complaint in this case be accessed by referencing FINRA Disciplinary Proceeding: #2015043646501
The Allegations Against CSSC and Eric S. Smith
According to FINRA investigators, CSSC and Eric S. Smith intentionally misrepresented and omitted key material facts when attempting to offer bridge loan securities to investors in Florida and other U.S. jurisdictions. More specifically, FINRA alleges that the broker and brokerage firm made the following misrepresentations and relevant omissions:
- The firm failed to disclose that CSSC had been unable to make interest payments on its existing loans, and needed more capital to stay afloat;
- They failed to disclose that CSSC had already previously defaulted on a $3 million loan that was owed to other investors;
- They touted a “major revenue event” involving South Dakota Trust Company, a deal that quite simply never existed; and
- They claimed that CSSC had a relationship with the City of Jacksonville, Florida, that would put more than $1 billion more under their management, when, in reality, there was no basis to make any such statements.
According to the bridge loan documents that were presented to investors, and have now been obtained by FINRA investigators, CSSC not only told prospective investors that the Jacksonville deal would put substantially more money under its management, but also that it would directly raise revenue, as a financial consulting contract was included as a part of the overall deal with the city. Yet, upon investigation, FINRA found no evidence that there was any Jacksonville deal, nor were there negotiations with the city. In fact, FINRA does not believe that CSSC even had the capacity to make such a deal.
The Fraud Took in at Least $130,000
In total, FINRA officials believe that CSSC fraudulently raised $130,000 by making material misrepresentations to four different investors, who eventually put money into the bridge loan scheme. Two investors put $50,000 into the company, while the other two put in $20,000 and $10,000 respectively. As the firm has no basis for making the statements that it did, FINRA has charged Mr. Smith and CSSC with violations of Section 10(b) of the Exchange Act, Rule 10b-5 and a violation of FINRA Rule 2010.
Were You a Victim of Fraud in South Florida?
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Resource:
disciplinaryactions.finra.org/Search/ViewDocument/69426