The Financial Industry Regulatory Authority (FINRA) announced today that a FINRA hearing panel has expelled Washington, D.C.-based Success Trade Securities, Inc. from membership and barred its CEO and President, Fuad Ahmed, for the fraudulent sale of promissory notes and for creating a Ponzi scheme. In addition, the firm and Mr. Ahmed are jointly and severally ordered to pay approximately $13.7 million in restitution to 59 investors, the majority of whom were current and former NFL and NBA players.
In April 2013, FINRA issued a complaint against Success Trade Securities and Mr. Ahmed charging fraud in the sales of promissory notes issued by the firm’s parent company, Success Trade, Inc., and filed a Temporary Cease and Desist Order to immediately halt their activities, to which Ahmed and the firm consented.
Following a hearing on the allegations in the complaint, the panel found that from February 2009 through March 2013, Mr. Ahmed and Success Trade sold $19.4 million in Success Trade promissory notes to investors while misrepresenting or omitting material facts. The decision notes that Ahmed and Success Trade omitted material facts from the offering documents that would have revealed that the parent company was in dire financial condition.
During the hearing, Mr. Ahmed admitted that the parent company lost money every year in the last 14 years except for 2007. Success Trade and Mr. Ahmed also misrepresented to investors that the proceeds would be used for business expenses to promote and build the parent company’s businesses when, in fact, the funds were used to make unsecured loans to Mr. Ahmed for personal expenses and to make interest payments to existing noteholders, thereby creating a Ponzi scheme that enabled the fraud to continue. In addition, as notes issued in 2009 and 2010 began to mature, Mr. Ahmed sought to persuade investors to convert their notes to equity or to extend the term of the notes by creating the false impression that his businesses were thriving and about to be listed on a European exchange. He also falsely led investors to believe that he was about to make a $15 million acquisition of an Australian company.
Success Trade and Ahmed were also sanctioned for selling unregistered securities; however, in light of the expulsion and bar, these additional sanctions were not imposed.