Two founders of Ohio-based Cedar Brook Financial Partners and its CEO have had their securities licenses suspended for allegedly making false statements about two high-risk private placement securities.
The IMH Fund invested in short-term commercial mortgage loans. Investors’ funds were used to make loans to owners and real estate developers whose financing needs could not be met by traditional lenders. The fund’s private placement documents specified that the investments carried a significant risk of default, that investors’ rights to redeem the investments units were significantly limited, and that the investments lacked both liquidity and marketability.
Despite these facts, Slater and Nakhooda allegedly told potential investors that the fund was a safe, consistent security that never failed to return principal. Perlmuter, Slater, and Nakhooda also allegedly said the investments were entirely liquid after 60 days. According to FINRA, these statements directly contradicted the information specified in the fund’s private placement memorandum.
“INVESTMENT IN OUR NOTES INVOLVES SIGNIFICANT RISK. THE NOTES ARE SUITABLE ONLY FOR PERSONS WHO HAVE SUBSTANTIAL FINANCIAL RESOURCES AND HAVE NO NEED FOR LIQUIDITY IN THIS INVESTMENT. NO ONE SHOULD INVEST IN OUR SECURED NOTES WHO IS NOT PREPARED TO LOSE YOUR ENTIRE INVESTMENT.”
Despite this warning, Perlmuter and Nakhooda allegedly told potential investors that the notes offered principal protection. Perlmuter and Slater also allegedly altered customer accounts to reflect false net worth information.
All three brokers were suspended for a period of months and ordered to pay fines of between $30,000 and $50,000 each. Though they neither admitted nor denied FINRA’s allegations, all three consented to the entry of the findings.