FINRA

FINRA RULES 2010, 2150, 3110, 8210, NASD RULES 2110, 3030, 3040 - FREDERICK W. SHULTZ FAILED TO GIVE PROMPT WRITTEN NOTICE TO HIS MEMBER FIRM THAT HE WAS BEING COMPENSATED FOR PARTICIPATING IN THE MANAGEMENT OF A LIMITED LIABILITY COMPANY. SHULTZ PARTICIPATED IN EACH SALE OF THE COMPANY'S SECURITIES EFFECTED BY REPRESENTATIVES OF HIS FIRM, MADE THE REGULATION D FILING WITH THE SEC FOR ITS SALE OF SECURITIES, PROCESSED CUSTOMER FUNDS RECEIVED FROM THE SALE OF SECURITIES AND INVESTED THE FUNDS, AND KEPT, AND IN MOST CASES SIGNED, THE SUBSCRIPTION AGREEMENTS AND OTHER OFFERING DOCUMENTS. SHULTZ FAILED TO GIVE WRITTEN NOTICE OF HIS INTENTION TO PARTICIPATE IN THE SALE OF THE COMPANY'S SECURITIES TO HIS FIRM. THE FIRM LATER APPROVED THE SALE OF THE SECURITIES TO INVESTORS. SHULTZ ALSO FAILED TO ENSURE THAT THE SALES OF SHARES IN WHICH HE PARTICIPATED AND TOTALED APPROXIMATELY $600,311 WERE RECORDED ON HIS FIRM'S BOOKS AND RECORDS, THEREBY CAUSING HIS FIRM'S BOOKS AND RECORDS TO BE INACCURATE IN CONTRAVENTION OF FINRA RULE 3110 AND SECURITIES EXCHANGE ACT OF 1934 RULE 17A-3. SHULTZ COMPLETED AND SIGNED A FIRM ISSUED OUTSIDE BUSINESS INTEREST SCHEDULE WHICH REQUESTED AN IDENTIFICATION OF ALL OUTSIDE BUSINESS ACTIVITIES WITHOUT DISCLOSING HIS INVOLVEMENT WITH THE LIMITED LIABILITY COMPANY. ON A LATER SCHEDULE, SHULTZ FALSELY DISCLOSED THAT THE COMPANY WAS IN THE PLANNING STAGES WHEN IT WAS, IN FACT, AN ACTIVE, ONGOING BUSINESS. SHULTZ MAINTAINED THE COMPANY'S CHECKING ACCOUNT AND CHECK REGISTER. CUSTOMERS DEPOSITED A TOTAL OF $374,500 INTO THE CHECKING ACCOUNT TO BE INVESTED IN A FUND AND SHULTZ, WITHOUT THE KNOWLEDGE OR CONSENT OF THE CUSTOMERS, MISUSED THE FUNDS BY NOT INVESTING THE FUNDS AND BY MAKING "DISTRIBUTIONS OF PROFITS" TOTALING $147,000 TO A COMPANY HE CONTROLLED WITH OTHERS. SHULTZ FAILED TO RESPOND TO FINRA REQUESTS TO APPEAR FOR AN ON-THE-RECORD INTERVIEW.

Order

Bar (Permanent)

All Capacities

Indefinite

7/18/2014

Monetary Penalty other than Fines

$2,468.85

HEARING PANEL DECISION RENDERED SEPTEMBER 20, 2012 WHEREIN SHULTZ WAS BARRED FROM ASSOCIATION WITH ANY FINRA MEMBER IN ANY CAPACITY FOR ENGAGING IN PRIVATE SECURITIES TRANSACTIONS, IN VIOLATION OF FINRA RULE 2010 AND NASD RULES 2110 AND 3040; AND FOR FAILING TO PROVIDE TIMELY TESTIMONY AS REQUESTED PURSUANT TO RULE 8210, IN VIOLATION OF FINRA RULES 2010 AND 8210. THE PANEL ALSO FINDS THAT SCHULTZ ENGAGED IN OUTSIDE BUSINESS ACTIVITIES IN VIOLATION OF NASD RULE 3030 AND FINRA RULE 2010; CAUSED INACCURATE ENTRIES TO BE MADE IN THE BOOKS AND RECORDS OF HIS FIRM, IN VIOLATION OF NASD RULE 3110 AND FINRA RULE 2010; MADE MISSTATEMENTS ON COMPLIANCE QUESTIONNAIRES OF HIS FIRM, IN VIOLATION OF FINRA RULE 2010; AND MISUSED CUSTOMER FUNDS, IN VIOLATION OF FINRA RULES 2150 AND 2010. IN LIGHT OF THE BAR, THE HEARING PANEL FINDS IT UNNECESSARY TO IMPOSE ADDITIONAL SANCTIONS UPON SHULTZ. ON OCTOBER 4, 2012, SHULTZ APPEALED TO THE NATIONAL ADJUDICATORY COUNCIL (NAC). NAC DECISION RENDERED JULY 18, 2014 WHEREIN THE FINDINGS ARE AFFIRMED, IN RELEVANT PART, AND THE SANCTIONS MODIFIED. THE NAC DECIDED TO IMPOSE SANCTIONS FOR SHULTZ'S MISSTATEMENTS ON HIS FIRM'S COMPLIANCE QUESTIONNAIRE, WHERE THE HEARING PANEL DECLINED TO DO SO. THE NAC BARRED SHULTZ FOR PARTICIPATING IN UNDISCLOSED PRIVATE SECURITIES TRANSACTIONS AND OUTSIDE BUSINESS ACTIVITIES, IMPOSED A SECOND BAR FOR HIS MISSTATEMENTS ON HIS FIRM'S COMPLIANCE QUESTIONNAIRE, AND ASSESSED A THIRD BAR FOR HIS FAILURE TO APPEAR TIMELY FOR HIS ON-THE-RECORD TESTIMONY. THE NAC CONCLUDED THAT SHULTZ'S VIOLATION FOR CAUSING HIS FIRM TO MAINTAIN INACCURATE BOOKS AND RECORDS, AND HIS MISUSE OF CUSTOMER FUNDS, EACH MERIT A $10,000 FINE AND ONE-YEAR SUSPENSION IN ANY AND ALL CAPACITIES, BUT DECLINED TO IMPOSE THESE FINES OR SUSPENSIONS IN LIGHT OF THE THREE BARS THAT HAVE ALREADY BEEN IMPOSED ON HIM. IN ADDITION, SHULTZ MUST PAY, JOINTLY AND SEVERALLY, APPEAL COSTS OF $2,468.85. THE BAR IS EFFECTIVE AS OF JULY 18, 2014. ON AUGUST 19, 2014, SHULTZ APPEALED THE DECISION TO THE SECURITIES AND EXCHANGE COMMISSION (SEC). THE BAR REMAINS IN EFFECT WHILE ON APPEAL. SEC ADMIN RELEASE 34-75981/SEPTEMBER 24, 2015: THE SEC SUSTAINED FINRA'S FINDINGS OF VIOLATIONS AND SANCTIONS IMPOSED. THE DECISION BECAME FINAL ON NOVEMBER 23, 2015.