Recently, the Financial Industry Regulatory Authority (“FINRA”) suspended and fined Michael Pellegrino of Taylor Capital Management, Inc. (“TCM”) for distributing misleading communications in July 2017. Pellegrino was based in Florida.
Per Pellegrino’s Letter of Acceptance, Waiver, and Consent (“AWC”), while with TCM, Pellegrino distributed a retail communication called “Short Term High Yield Contract” (the “Ad”) to approximately 80 investors. The Ad promoted an investment issued by a Florida limited liability company that contained “misleading statements, improper projections of future performance, and omitted material information.”
Although the Ad stated that the investment was not a security, it promoted “a financial instrument and referenced the broker-dealer TCM, and that TCM was a member of FINRA.” To invest, individuals were required to sign a “Memorandum of Indebtedness” (“MOI”), which stated that their funds would be distributed at the issuer’s discretion. These retail investors also signed a Statement of Understanding relating to the MOIs, which referenced TCM.
The issuer pooled together the investors’ money to distribute the funds to small businesses in payment called a “Merchant Cash Advance” (“MCA”). The businesses receiving those funds were unable to receive funding from traditional avenues, such as banks. The investors believed that they would be receiving returns based on the business’ future revenue.
The Ad contained numerous “false and misleading claim”, including:
- Multiple references to 6-10% returns, without an any contractual obligation for the issuer to pay investors; and
- Statements that the investment would be “Backed by Collateral. . . Asset Backed Like Cash, CDs, Oil and Real Estate” and would involve “No Stock Market or Interest Rate Risk.”
The Ad also omitted material information about risks and features of the investment, making it misleading.
For Pellegrino’s full AWC, click here.
What is a Retail Investor?
Retail investors are non-professional market participants who generally invest smaller amounts. They can be distinguished from institutional investors who invest larger amounts on behalf of others. Endowment funds, commercial banks, mutual funds, hedge funds, pension funds, and insurance companies are examples of institutional investors. Institutional investors are considered by regulatory bodies to be more sophisticated than a retail investor. The average investor is likely a retail investor.
Related FINRA Rules
FINRA requires its members (such as financial advisors and brokers) to adhere to certain rules. Mr. Pellegrino’s conduct violated the following FINRA rules:
Rule 2210(d)(1)(A): All member communications must be based on principles of fair dealing and good faith, must be fair and balanced, and must provide a sound basis for evaluating the facts in regard to any particular security or type of security, industry, or service. No member may omit any material fact or qualification if the omission, in light of the context of the material presented, would cause the communications to be misleading.
Rule 2210(d)(1)(B): No member may make any false, exaggerated, unwarranted, promissory or misleading statement or claim in any communication. No member may publish, circulate or distribute any communication that the member knows or has reason to know contains any untrue statement of a material fact or is otherwise false or misleading.
Rule 2210(d)(1)(F): Communications may not predict or project performance, imply that past performance will recur or make any exaggerated or unwarranted claim, opinion or forecast.
If you or someone you know invested with Michael Pellegrino, Taylor Capital Management, or has been defrauded, contact Regina Gilmour at Mika Meyers PLC for a free consultation and document review.