Securities

SEC Files Offering Fraud Action Against Sellers of Over $10M Worth of Bonds to Public

 A business man, a real estate company he acquired from his grandfather, a registered representative who has now been barred by FINRA from the securities business and Maryland Division of Securities from the advisory business and an unnamed broker teamed-up to sell millions of dollars of bonds to the public. The real estate firm which issued the bonds eventually defaulted after the investor funds had been spent, leaving holders with little. SEC v. Azar, Civil Action No. 14-cv-3598 (D. Md. Filed November 14, 2014).

Wilfred Azar has been the majority owner of Empire Corporation, both defendants, since 1999. Joseph Giordano, also a defendant, was the branch manager and a registered representative associated with a registered broker-dealer. In addition, he is the sole owner, General Manager and President of Giordano Asset Management, a one-time registered investment adviser which served as the adviser to the Giordano fund.

Mr. Azar became President and CEO of Empire when he acquired the company from his grandfather, its founder. The company owned and operated a 250,000 square foot, ten-story office building in Glen Burnie, Maryland. Rental income from the building was the primary source of revenue for the company.

For several years prior to acquiring the company Mr. Azar sold bonds as secondary financing for its operations. He continued this practice after acquiring Empire. The bonds were sold through oral solicitation without a prospectus or other offering documents. Investors typically received a one page certificate with the terms of the investment. Usually the certificate provided for a term of five years at 10% interest, compounded daily.

Shortly after acquiring Empire Mr. Azar arranged for the broker where his long time friend and business associate, Joseph Giordano was employed, to custody the bonds so that holders could place them in an IRA account. While Mr. Giordano’s firm cautioned him to only sell the bonds on an unsolicited basis and prohibited him from recommending them, he ignored the restrictions. Over a three year period beginning in 2006 he raised at least $1.5 million from about 23 investors. Mr. Giordano also caused the Fund to purchase bonds. Although he had little financial data regarding Empire, over the period he became aware of its financial condition but continued to sell the bonds.

At the same time Mr. Azar arranged for Broker A, associated with another registered broker-dealer, to sell the bonds. Broker A, relying largely on Mr. Azar’s representations regarding Empire, raised about $3.6 million from bond sales. Collectively, Messrs. Azar, Giordano and Broker A raised over $7 million from about 50 investors. Investors were assured that Empire as a successful, profitable business. They were also told that their funds would be used to further develop the business.

As the bonds were being sold the financial condition of Empire deteriorated. Between 2006 and 2009 the financial condition of the company declined while its debt climbed. The debts came from not just from the operations of Empire but also the other unprofitable businesses of Mr. Azar. While portions of the money raised was used to repay investors, other investor funds were diverted to Mr. Azar’s life style.

By 2010 the Defendants were unable to recruit new investors. Empire was no longer able to repay existing investors. Most of the investors lost substantially all of their investment. The SEC’s complaint alleges violations of Securities Act Sections 5(a) , 5(c) and 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4) and Investment Company Act Section 34(b). The action is pending. A parallel criminal action was filed against Mr. Azar by the U.S. Attorney’s Office for the District of Maryland. See Lit. Rel. No. 23232 (November 14, 2014).

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