A FINRA letter of acceptance

FINANCIAL INDUS'?'RY REGULATORY AUTHORITY
LETTER OF ACCEPTANCE, WAIVER AND CONSENT
NO. 2008011771601
TO:
Dcpartment of Enforcctnent
Financial Industry Regulatory Authority ("FTNRA")
RE:
Kcvin Lee Cliiie
CRD No. 2448720
Robert J.R. Bun'
CRD No. 2579551
Vincent Christopher
CRD No. 5344944
Thoinas C. Gi llcland
CRD No. 5504595
Pursuant to FINR.A Rule 9216 ofFINRA's Code ofProcedure, Kevin Lee Cline, Robert J.R. Burr,
Vincent Christopher, and Thomas C. Gilleland (?'Respondents") submit this Letter ofAcceptance,
Waiver and Consent ("AWC") for the purpose ofproposing a settlement ofthe alleged rule
violations describcd below. This AWC is submitted on the condition that, ifaccepted, FINRA will
not bring any future actions against Respondents alleging violations based on the same factual
findings described herein.
I.
ACCEPTANCE AND CONSENT
A.
Respondents hereby accept and consent, without admitting or denying the findings,
and solely for the purposes ofthis proceeding and any other proceeding brought by
oronbehalfofFINRA, orto which FINRA isaparty, prior to ahearing andwithout
an adjudication ofany issue of law or fact, to the entry ofthe following findings by
FINRA:
BACKGROUND
Kevin Lee Cline (CRD # 2448720) was first registered with FINRA in 1994 and has been
registered with Source Capital Group since March 2002. He currently is registered with Source as
a Corporate Securities Representative (Series 62); Direct Participation Programs Representative
(Series 22); General Securities Principal (Series 24); General Sccuritics Representative (Series 7);
and Agent (Series 63).
Robert J.R. Burr (CRD # 2579551) was first registcred with FINRA in 1994 and was registered
with Source as a General Securities Principal (Series 24); Gcneral Securities Representative
(Series 7); and Agent (Scries 63). He voluntarily terminated from Source on December 27, 2012.
Vincent Chr?tophcr (CRD # 5344944) was first registered with Source in 2007. He maintained
a Direct Piirlicipation Programs liccnsc (Series 22) and an Agent's license (Serics 63) with Sourcc.
He voluntarily terminated troin Source on January 30,2013.
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Thoinas C. Gillcland (CRD # 5504595) was first registered with Source in June 2008. He
currently maintains a Direct Participation Programs license (Series 22) and an Ageiit's license
(Series 63) with Source.
Respondents Cline and Gilleland are currently employed in the securities industry in a registered
capacity and are therefore subject to FTNRA'sjurisdiction pursuant to FINRA By-Laws Article V,
Section 2. FINRA has jurisdiction over Respondents Burr and Christopher pursuant to Article V,
Section 4 of FINRA's By-Laws.
None of the Respondents has any prior, relevant disciplinary history.
OVERVIEW
Cline, Bu?7', Christopher, and Gilleland are or were associated with Source. Cline is the
branch office manager for Source's Bowling Green, Kentucky branch office on Adams Street,
Burr managed the firm's Bowling Green office on Wright Street, and Christopher and Gilleland
were brokers working in the Wright Street branch. Source's Adains Sti?eet brai?ch office was the
sole seller of private offerings of oil and gas securities issued by ceitain limited partnerships (the
"Blue Ridge Securities") inanaged by Blue Ridge Group, Inc. (''Blue Ridge"). Source's Wright
Street branch office was the sole seller ofprivate offerings of securities issued by certain limited
partnerships (the''Argyle Securities") managed by Argyle Energy, Inc. ('?Argyle"). Blue Ridge
and Argyle were housed in the same building as the Adams Street branch office and were owned
by Robert ?Bob" Burr, who was a major stockholder and former officer of both Blue Ridge and
Argyle.
Atvarious times between October 11, 2006 and December 17, 2012 (the "relevant
period"), Respondents engaged in the following violations ofthe federal securities laws and
FINRA rules in connection with selling Blue Ridge and/or Argyle (as applicable) offerings. Cline
sold or caused the sale of interests in Blue Ridge Securities r'Blue Ridge investments") without
adequately disclosing that Blue Ridge provided funds to him that he used to pay brokers who sold
Blue Ridge investments, thereby violating FINRA Rule 2010 and NASD Rule 2110 by virtue of
violating Section 17(a)(2) ofthe Securities Act of 1933. Christopher and Gilleland solicited
potential investors in Argyle Securities C'Argyle investments") through e-mails that made
exaggerated and ut?founded promises regarding the perforniance ofthese Argyle Securities,
thereby violating NASD Rule 2210(d)(1) and FINRA Rule 2010. Burr failed reasonably to
supervise Christopher and Gilleland, thereby violating FINRA Rules 3010, 3012,2010 and NASD
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l?i, le 2110,
Iii addition, Cline failed lo update his Form U-4 to disclose certain tax liens imposed on
hiiii by the lntcrnal Revcnuc Service ("IRS").
FACTS AND VlOLAT?VE CONDUC'1'
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Cline sold or caused the sitle of Blue Ridge investments without adequately disclosing
in:,terinl facts
Source's Adains Street branch office in Bowling Grecn, Kentucky, sold securities offered
by Blue Ridge affiliates. Source had close ties with Blue Ridge. Source's Adains Street branch
office was in the same building as Blue Ridgc and its Wright Street office was supervised by
Robert J.R. "Jay" Burr ("Burr"), the son ofRobert Burr, a major Blue Ridge atid Argyle
stockholder and former officer. Cline superviscd and solicited sales ofBlue Ridge investments in
the Adams Strcct office.
In selling or causing the sale ofBlue Ridge investinents. Cline failed to adequately
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disclose material information to investors. Specifically, at times, Blue Ridge gave money to Cline
that Cline used to pay Source representatives a $2,000 monthly salary in advance oftheir draws.
Some brokers did not repay the salary advances. Blue Ridge Securities' offering docuinents did
not adequately disclose that Blue Ridge was indirectly compensating Source's registered
representatives through Cline. '1'lie offering documents merely disclosed that Blue Ridge assumed
responsibility for and paid "certain overhead expenses" ofSource in connection with the offerings
of Blue Ridge investments and a separate agreement between Blue Ridge and Source stated that
Blue Ridge would not provide funds to pay compensation to Source representatives. The failure to
adequately disclose that Cline used Blue Ridge funds to pay compensation to Source
representatives was a material omission. By selling the Blue Ridge investments without
adequately disclesing the advances from Blue Ridge, Cline violated FINRA Rule 2010 and NASD
Rule 2110 by virtue ofviolating Scction 17(a)(2) ofthe Securities Act of 1 933, 15 U.S.C. §
77q(a)(2)?
2.
Christopher and Gilliland made misstatements in sales pitches to potential customers
to invest in Argy?e Securities.
To solicit investments in Argyle Securities. Christopher and Gilleland made exaggerated
promises to customers regarding the oil and gas interests to be acquired by Argyle partnerships in
multiple emails.
For example,
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In a December 3,2009 email, Gilleland wrote to a potential customer"I have a very
rare opportunity to you, . .[in which you have] "a potential of 6-8 times your
money. . .. For the first time ever, Argyle has included a producing natural gas well
which will show you 25-30% annually right out ofthe gate! There is no guesswork
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hcrc, thc wcll is already drillcd and producing averaging 7 million cubic feet ofgas
pcr day. Unbelicvablcl"
.
Gillcland sent at least one additional email that saine day making similar claims,
along with other einails in November 2009 with diffe?ng but likewise exaggerated
claims iii which he described a potential offering as a"slam dunk" and as ?the most
conservative program I have ever offered." Gillcland's statcmcnts that the Argylc
investment was "a very rare opportunity" that might return 600-800 percent were
made without a reasonable basis and were exaggerated, and his statements that the
well could produce returns of25-30 percent "right out ofthe gate" were made
without a reasonable basis and were exaggerated. The customer who received the
"slain dunk" einail invested $10,000 in Argyle oil gas securities in January 2010.
7'he same customer also madc two additional oil and gas investments totaling
$16,400 in 2010,
.
In a December 4,2009 email, Christopher scnt an email to a prospective customer
in which he claimed to offer an interest in "A COMMERCIALLY producing well."
The einail further stated that in my years offunding, I never had an opportunity to
offer interest in a well that is consistently doing 25-30% annually w/out fail. I now
have that opportunity, and I'd like to tell you about it." Christopher followed up
with an email later that day stating "[a]side from a natural disaster, there is no risk
in this well." Christopher also sent additional emails in March 2009 claiming, for
example, that an opportunity was "HISTORY MAKING"; that a project had a
"safety net." He also sent an email in September 2010 stating that a project has
"final insults still promising @ roughly 6 [dollars return] to 1 [dollar invested] and
an annual return of apx. 80% between both wells w/ WAY less risk;" and a further
email in February 2010 stating that "the producing well we are offering you... has
generated a steady 70k a inonth in income, [so] we are considering closing the
program tomorrow and keeping the remainder for ourselves. I only have a small
portion left @ this point . . .." Three ofthe recipients ofthese emails purchased
Argyle Securities.
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These emails were communications with the public. Christopher and Gilleland
accordingly violated NASD Rule 2210(d)(1), which requires all such communications to be fair
and balanced, and prohibits exaggerated, unwarranted and misleading statements and claims, as
well as FINRA Rule 2010.
3.
Burr failed to adequately supervise the sale of Argyle Securities.
Burr supervised the Wright Street Source office, from which Gilleland and Christopher
misleading and exaggerated emails described above and failed to supervise their activities
the
sent
by, among other things, failing to adequately review such communications before they were sent
to customers.
Bui? violated NASD Rule 3010 and FINRA Rule 2010.
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4.
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Cline fi?il?cl t?
?ipcli?te his
Form U-4 to disclose tax liens against him.
Bctwccn .Iuly 23,2009 and Novembcr 29,2010, the IRS filed four liens againsl Cline
sccking to collect a total of approximately $821,000 in unpaid taxes and iiiterest. Question 14M
on the U-4 lbrm requires that any "unsalisfied judgments or licns" be reported. Pursuant to
By-Laws Articlc V Section 2, Cline should have ens?ired that the liens were reported within 30
days ofleatning about them. Cline willfully failed to report any ofthe liens on his U-4 until
August, 2012 -- - after FIT??RA qucstioncd thc firm about them. As a result, Cline violated FINRA
Rule 1122, IM-1000-1; and By-Laws Arl. V, Section 2.
B.
Respondents consent to the imposition of the following saiictions:
Kevin Cline consents to the iinposition ofthe following sanctions:
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A $10,000 fiiie; and
Suspension from association with any FINRA member in any capacity for a
period oftllrec inollths.
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Robert J.R. Burr consents to the imposition ofthe following sanctions:
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A $10,000 fine; and
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Suspension from acting in any principal capacity with any FINRA member
firin for a period of20 business days.
Vincent Christopher consents to the imposition ofthe following sanctions:
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A $5,000 fine; and
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Suspension from association with any FINRA member in any capacity for a
period ofthree months.
Thomas Gilleland consents to the imposition ofthe following sanctions:
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A $10,000 fine; and
Suspension from association with any FINRA member in any capacity
for a period of 30 days.
The sanctions imposed herein shall be effective on a date set by FINRA staff.
Respondents Cline and Gilleland agree to pay the inonetary sanction(s) upon notice that
this AWC lias bcen accepted and that such payment(s) are due and payable. They each
have submitted an Election of Payment forms showing the method by which they propose
to pay the fine imposed.
Respondents Burr and Christoplier agree that their fine shall be due and payable either
immediately upon reassociation with a member firm following their respective 20
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busi?icss-day and three-month suspensions noted above, or prior to any application or
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rcqucst for relief from any statutory disqualification resulting fivm this or any other event
or proceeditig, whichever is earlier.
Respondcns specifically and voluntarily waive any right to claim that they are unable to
pay, now or al any time hereafter, the monetary sanction(s) imposed in this inatter.
,
Respoiidcnts Cline, Burr, Christopher, and Gillcland each understand that ifhe is ba?Ted or
suspended from associating with any FINRA member, he becomes subject to a statutory
disqualification as that term is defined in Article III, Section 4 of FINRA's By-Laws,
incorporating Scction 3(a)(39) ofthe Securities Exchange Act of 1934. Accordingly, each
Respondent understands tliat he may not be associated witli any FINRA member in any
capacity, including clerical or ministerial functions, during the period ofthe bar or
suspension (?QQ FINRA Rulcs 8310 and 8311).
Respondent Cline understands that this scttleinent includes a finding that he willfully
omittcd to state a material fact on a Form U4, and that under Section 3(a)(39)(F) ofthe
Securities Exchange Act of 1934 and Article IH, Section 4 ofFINRA's By-Laws, this
omission makes me subject to a statutory disqualification with respect to association with a
member.
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II.
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WAIVER OF PROCEDURAL RIGHTS
Rcspondents spccifically and voluntarily waive the following rights granted under FINRA's Code
of Procedure:
A
To have a Complaint issued specifying the allegations against them;
B.
To be notified of the Complaint and have the opportunity to answer the allegations
in writing;
C.
To defend against the allegations in a disciplinary hearing before a hearing panel, to
have a written record ofthe hearing made and to have a written decision issued; and
D.
To appeal any such decision to the National Adjudicatory Council C'NAC") and
then to the U,S. Securities and Exchange Commission and a U.S. Court ofAppeals.
Further, Respondents specifically and voluntarily waive any right to claim bias or prejudgment of
the General Counsel, the NAC, or any member ofthe NAC, in connection with such person's or
body's participation in discussions regarding the terms and conditions ofthis AWC, or other
consideration ofthis AWC, including acceptance or rejection ofthis AWC.
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?cspondcnls further specifically and voluntarily waivc any right to claim that a person violated thc
ex parle pivhibitions ofl:INRA Rule 9143 or the separation of functions prohibitions ofFINRA
Rule 9144, in connection with such person's or body's participation in discussions regarding the
terms and condilioi?s ofthis AWC, orother consideration ofthis AWC, including its acceptance or
rejcction.
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111.
OTHER MAT'1'ERS
Respondents understand that:
A.
Submission of this AWC is voluntary and will not resolve this matter unless and
until it has been reviewed and accepted by the NAC, a Review Subconiinittee ofthe
NAC, or the Office of Disciplinary Affairs ("ODA"), pursuant to FINRA Rule
9216;
B,
If this AWC is not accepted, its submission will not be used as evidence to prove
any
C.
of the allegations against them; and
If accepted:
1.
this AWC will become part of their permanent disciplinaiy record and may
bc considered in any future actions brought by FINRA or any other
regulator against thein;
D.
2.
this AWC will be made available through FINRA's public disclosure
program in response to public inquiries about their disciplinary record;
3.
FINRA may make a public announcement concerning this agreement and
the subject matter thereofin accordance with FINRA Rule 8313; and
4.
Respondents may not take any action or make or permit to be made any
public statement, including in regulatory filings or otherwise, denying,
directly or indirectly, any finding in this AWC or create the impression that
the AWC is without factual basis. Respondents niay not take any position
in any proceeding brought by or on behalfofFINRA, or to which FINRA is
a party, that is inconsistent with any part ofthis AWC. Nothing in this
provision affects their: (i) testimonial obligations; or (ii) right to take legal
or factual positions in litigation or other legal proceedings in which FINRA
is not a palty.
Respondents may attach a Corrective Action Statement to this AWC that is a
statement of demonstrable corrective steps taken to prevent future misconduct.
Respondents understand that they may not deny the charges or make any statement
that is inconsistent with the AWC in this Statement. This Statement does not
constitute factual or legal findings by FINRA, nor does it reflect the views of
FINRA or its staff.
Each Respondent certifies that he has read and understands all ofthe provisions ofthis AWC and
has been given a full opportunity to ask questions about it; that each has agreed to its provisions
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600557v2
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voluntarily; and that no offer, threat, inducement, or promisc of miy kind, other than the terms set
forth herein tind lhc prospect of avoiding llic issuance ofa Complaint, has been madc to induce him
submit it.
,
1
Date (mm/dd/yyyy)
Kevin Lee Cline
Date (mm/dd/yyyy)
Robert J.R. Burr
Date (mm/dd/yyyy)
Vincent Christopher
Date (mm/dd/yyyy)
Thomas C. Gilleland
i
Reviewed by:
C7.U.-7-.mCPh-i
Jeffr?y M. McPhaul
Munck Wilson Mandala, LLP
600 Banner Place Tower
12770 Coit Road
Dallas, TX 75251
972.628.3653
Accepted by FINRA:
Date
Signed on behalf of the
Director of ODA, by delegated authority
James E. Day
Chief Counsel and Vice President
FINRA Department of Enforcement
15200 Omega Drive, 3rd Floor
Rockville, MD 20850
Telephone: 301-258-8520
9
600557v2
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voluntarily; and tlial no offer, threat, inducement, or prornise ofany kind, other than the tenns set
ioi,tli herein ??nd tlie pi,o?p?c?t oi.?ivoiding tlie is??u?????,?a Coii???????e?? inade to inciu?e him
mtbmit it
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Kgvi?ht.ce C:li?e
Date (mm/dd/yyyy)
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Date Onm/dd/yyyy)
Robcrt J.R. Burr
Date (mm/dd/yyyy)
Vincent Christopher
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1
Date (nim/dd/yyyy)
-
Thomas C. Gilleland
Reviewed by:
Jeffrey M. McPhaut
Munck Wilson Mandala, LLP
600 Banner Place Tower
12770 Coit Road
Dallas, TX 75251
972.628.3653
,
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Accepted by FINRA:
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Date
Signed on behalf of the
Director of ODA, by delegated authority
L
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James E. Day
Chief Counsel and Vice President
FINRA Depmtment of Enforcement
15200 Oinega Drive, 3'? Floor
Rockville, MD 20850
Telephone: 301-258-8520
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60.0557vz
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f?nih Ite,rri,? imd tlic pru?ix?c? o?' l,v?,i?Iing thc,?suanoc of a ('omplainl., has hwn ,n,?de *,inducc him
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Kevin l .cc Cline
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Robert J,R. B(,rr
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972.(,2?3<?53
Accept?d by FINRA.
-Date
bchalf oi lhe
Dirci:tor of ODA. by delegated a?thnrily
Sig,?ed on
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?mes E. Da>
Chief Counsel and V,ce P?esklwt
FINRA Departmen? of F.,?fon??mcnt
iSDaOOMA/MW. 3? Roor
Rocio'ille, MI)20850
1'elqihonc: 101-2?8-8520
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voluntarily; and that no offer, threat, induccment, or promise of any kind, other than the terms set
forth herein and the prospect of avoiding the issuance of a Complaint, has been tnade to induce him
submit it,
t
Date (min/dd/yyyy)
Kevin Lee Cline
Date (mm/dd/yyyy)
Robert J.R. Burr
0.9/19/208
Date (rhm/dd/yyyy)
Date (mm/dd/yyyy)
42-Vincent Christopher
Thomas C. Gilleland
-
Reviewed by:
Jeffrey M. McPhaul
Munck Wilson Mandala, LLP
600 Banner Place Tower
12770 Coit Road
Dallas, TX 75251
972,628.3653
Accepted by FINRA:
Date
Signed on behalf of the
Director of ODA, by delegated authority
James E. Day
Chief Counsel and Vice President
FINRA Department of Enforcement
15200 Omega Drive, 3? Floor
Rockville, MD 20850
Telephone: 301-258-8520
9
6O0551v2
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v?,I u n l nri ly ; and t hi? t m, oj ?i:r, t I ?, et, i, iducem e,it, 01- pro mi,?c ?,I' ?,n y ki nd. 0 th er t h?i? I th e tm'nI s set
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Robert J.12. Burr
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1(evicwe,l by:
jenmy M. Mcphaui
-
Munck Wilso?1 Mmidala, LLP
600 Banner Place Tower
12770 Coil Ro?id
D:?lla:,. TX 7525 I
972.628.3653
Accei,?ed by ?INRA.
Dale
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Signed on behalfonhe
Directot ofODA, by delegated authority
--.-
James E. Day
Cl?iei Counsel and Vice President
FJ NRA Depnrtment ?if E,iforccment
15200 Omega Drive. 3'? Floor
l?ockville, MD 20850
Telephone: 301-258-8520
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MM-'0 2
voluntarily; and that no ofl'er, threat. in?iucemeiit, or promise ofany kind, other than the terms set
iorlli herein and the prospect oiavoiding lhc issuance ofa Complaint, has bccn made to induce him
subniit it.
Date (inm/dd/yyyy)
Kevin Lcc Cline
Datc (mm/dd/yyyy)
Robert J.R. Burr
Datc (mm/dd/yyyy)
Vincent Christopher
Date (rnrn/dd/yyyy)
Thomas C. Gilleland
Rcvicwcd by:
Jeffrey M. McPhaul
Munck Wilson Mandala, LLP
600 Banner Place Tower
12770 Coit Road
Dallas, TX 75251
972.628.3653
Accepted by FINRA:
n.
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120113
Date
Signed
o??ehalfof
the
Directo?of OD?by delegated authority
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??66,?lyhief Counsel and Vice President
lRFINRA
Department of Enforceinent
1
15200 Omega Drive, 3rd Floor
Rockville, MD 20850
Telephone: 301-258-8520
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600557v2