Stephen Grivas, a broker at Woodbury, NY based Obsidian Financial Group, LLC, was named a respondent in a Financial Industry Regulatory Authority (FINRA) complaint alleging that he formed Obsidian Social Network Fund I to pool funds for the sole purpose of acquiring, holding and/or selling Facebook shares. The complaint alleges that the fund's intention, as set out in the private placement memorandum (PPM), was to purchase shares of Facebook on the secondary market for private company stock. Investors in the fund were allegedly supposed to gain an indirect interest in privately held Facebook stock before an initial public offering. The complaint alleges that Mr. Grivas was the sole designated manager for the fund and had sole authority to invest fund assets, pay fund expenses and otherwise transfer the assets of the fund. Further, Mr. Grivas allegedly had sole signatory authority over the fund's operating account, which invested the fund's assets and the fund's management account, which was set up to receive any of the management fees due to the fund. The complaint also alleges that Obsidian Financial Group was one of the placement agents that sold interests in the fund. Obsidian Social Network Fund used the money raised from the offering to purchase Facebook shares. However, due to limited availability of shares in the secondary market, the fund was unable to invest all the funds it raised into Facebook shares.
In addition, the complaint alleges that Mr. Grivas wired $224,046 from the fund's operating account to its management account as his management fee pursuant to the terms of the fund's PPM, which was two percent of the gross proceeds of the offering. Mr. Grivas also allegedly wired an additional $280,000 from the fund's operating account to its management account and then immediately transferred the $280,000 from the fund's management account to a bank account that he owns and maintains for his personal investment purposes with the sole authority to withdraw funds from the account. The same day, Mr. Grivas allegedly wired the entire $280,000 from his bank account to the bank account of his firm's holding company and wired $280,000 from the holding company's bank account to his firm's bank account, which was experiencing financial difficulties.
FINRA further alleges that the firm submitted a Securities Exchange Act of 1934 Rule 17a-11(b) notification, indicating that the firm had a net capital deficiency of $110,000 and that the firm had received a capital contribution of $280,000, which allowed the firm to get back into net capital compliance. According to the complaint, Mr. Grivas was not entitled to withdraw $280,000 and transfer it to his capital-deficient firm. Neither the fund's PPM nor the operating agreement allegedly allowed Mr. Grivas to receive more than the maximum 2 percent management fee from the fund, which he had already withdrawn. Mr. Grivas allegedly did not provide any notice, before or afterward, to the investors in the fund that he was allegedly withdrawing $280,000 from the fund or using proceeds of the fund to capitalize his firm.
Moreover, the complaint alleges that for purposes of assisting with the fund's business activities, Mr. Grivas retained a consultant on behalf of the fund. However, Mr. Grivas did not disclose to the consultant that he had allegedly transferred $280,000 from the fund to the firm until the day before the consultant provided investigative testimony to FINRA. Up until then, the consultant sent Mr. Grivas several emails informing him that the fund needed to return the remaining un-invested funds to investors. The complaint alleges that fund investors have not received a return of their remaining funds and Mr. Grivas, of Jericho, New York, has not returned the $280,000 to any of the fund's bank accounts.
Broker-dealers must establish and implement a reasonable supervisory system to protect customers from broker misconduct. If broker-dealers do not establish and implement a reasonable supervisory system, they may be liable to investors for damages flowing from the misconduct. Therefore, investors who have suffered damages due to Mr. Grivas' alleged misappropriations can bring forth claims to recover losses against Obsidian Financial Group, which could have prevented Mr. Grivas from committing the alleged illegal activity. Have you suffered losses in Obsidian Social Network Fund I due to Mr. Grivas' alleged misconduct? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation. Mr. Pearce is accepting clients with valid claims against Obsidian Financial Group, LLC stockbrokers who may have engaged in misconduct and caused investors losses.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.
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