FINRA building

The Financial Industry Regulatory Authority suspended a broker for nine months after he sold $625,000 in Woodbridge Group of Cos.' promissory notes to five investors without first seeking approval from his company, Sigma Financial.

Adviser Fredrick M. Randhahn of Ogden, Utah, signed a letter of acceptance, waiver and consent agreeing to the suspension, a $5,000 fine and disgorgement of the nearly $33,200 in commissions he received from the transactions plus interest.

From June 2016 to September 2017, "Randhahn solicited investors to purchase promissory notes" offered by the Woodbridge Group, a "purported real-estate investment fund," FINRA said.

The Securities and Exchange Commission found Woodbridge actually was operating as a massive Ponzi scheme from July 2012 to December 2017 when the company filed a Chapter 11 bankruptcy petition.

In October, ex-Woodbridge CEO Robert Shapiro of suburban Los Angeles was sentenced to 25 years in prison by a Miami federal judge for leading the $1.2 billion fraud scheme that fleeced 9,000 investors.

Prosecutors charged Woodbridge promised funds would be placed in low-risk, high-interest rate loans issued on real estate owned by third parties, which turned out to be an extensive network of 270 limited liability companies set up by Shapiro. Woodbridge's sales operation operated from offices in Boca Raton, Colorado, Tennessee and Connecticut.

Two of the five investors who purchased Woodbridge notes from Randhahn were also clients of Sigma, FINRA said, noting Randhahn also personally invested $125,000 in Woodbridge notes.

He participated in those private transactions without providing written notice to Sigma, violating FINRA Rules 2010 and 3280.

Randhahn, a broker since 1987, was fired in August 2018 for selling unapproved investments.

More Details

After registering with FINRA through Sigma on Jan. 13, 2012, Randhahn stayed with the broker-dealer until his registration was terminated on Aug. 24, 2018. According to the Uniform Termination Notice for Securities Industry Registration filed by Sigma, it discharged Randhahn because it "ha[d] reason to believe the representative sold unapproved investments to customers."

Randhahn isn't currently registered or associated with a FINRA member firm. He was still listed Friday as a business consultant for financial consulting firm Upstream Investment Partners on that company's LinkedIn page, as well as his own. Sigma serves as that firm's broker dealer, according to Upstream's website.

But Jon Holmes, a founding partner of Upstream, told ThinkAdvisor: "Fred is no longer affiliated with Upstream or our BD, Sigma Financial." Holmes didn't specify when or why the relationship ended. Randhahn and Sigma didn't immediately respond to requests for comment.

Randhahn has 32 years of experience as an advisor and has been affiliated with a total of seven firms, including Ameriprise Financial, Cigna and Merrill Lynch, according to BrokerCheck. There were no complaints against him until the Sigma termination of August 2018; a customer dispute from Oct. 30, 2018 is still pending.

The client accused Randhahn of selling unapproved investments in 2016 and 2017 that were "high risk and fraudulent," according to BrokerCheck. The customer requested damages of $400,000.

Jeff Berman reports for Think Advisor.

Read more:

CEO Sentenced to 25 Years for Leading $1.3 Billion Real Estate Ponzi Scheme

California's Robert Shapiro Pleads Guilty in $1.3 Billion Real Estate Ponzi Scheme