VFG Securities

Broker-Dealer Owner and His Firm Settle SEC Case Alleging Overconcentration of Investor Money In Illiquid Investments

Jason Vanclef and his brokerage firm VFG Securities Inc. have settled the Financial Industry Regulatory Authority’s case accusing them of not adequately supervising their brokers so that clients’ portfolios did not end up concentrated in illiquid investments. Vanclef and VFG Securities, however, are not denying or admitting to the claims made in the complaint.

According to FINRA, from 11/2010 to 6/2012, nearly 95% of the broker-dealer’s revenue came from direct participation programs (DPP) and nontraded real estate investment trusts (nontraded REIT) sales. The illiquid investments were sold retail customers.

FINRA claimed that Vanclef had used “The Wealth Code,” which was the book that he authored, as a sales tool to promote investing in DPPs and nontraded REITs and to attract potential investors. The settlement with the regulator notes that in the book Vanclef repeatedly touted both types of illiquid investments as offering capital preservation and better returns—claims that FINRA said are “inaccurate and misleading” and conflict with information that the firm offered in prospectuses for the nontraded REITs and DPPs.

The Financial Industry Regulatory Authority is accusing VFG Securities of failing to supervise brokers to make sure that clients’ portfolios did not become overly concentrated in illiquid investments. In its complaint against the brokerage firm, the regulator said that from 11/10 to 6/12, VFG made nearly 95% of revenue from the sale of nontraded real estate investment trusts and direct participation programs. An audited financial statement with the SEC said that by 6/30/12, the broker-dealer had nearly $4M in revenues for that past year.

The self-regulatory organization said that VFG Securities owner Jason Vanclef wrote a “The Wealth Code,” which he used as sales literature to market investments in direct participation programs and nontraded REITs, in order to bring potential investors. He purportedly claimed in the book that nontraded REITs and nontraded direct participation programs provide capital preservation and high returns—a claim that is misleading, inaccurate, and not in line with information in the prospectuses for the instruments sold by VFG Securities. Such investments are typically high risk to the extent that an investor may end up losing a substantial part of if not all of his/her investment.

Vanclef also wrote in the book that by investing in the instruments that he recommended, investors stood to earn 8-12% results and consistent returns. FINRA said that he and the firm did not give readers a “sound basis” upon which to assess such claims.

In an interview with Vanclef, InvestmentNews said that FINRA has been “persecuting” him, ever since VFG underwent an exam in 2012. That is the year when the self-regulatory organization started concentrating more of its attention on illiquid alternative investment sales. Vanclef is accusing the regulator of “character assassination.”

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FINRA Accuses Brokerage Firm of Lack of Supervision in Nontraded REIT Sales