Between December 2015 and December 2017, while associated with David Lerner Associates, Bonilla recommended investments in energy sector securities without having a reasonable basis to believe those investments were suitable. This means that Bonilla had insufficient knowledge or that the investments had insufficient financials to be recommended to investors with even the highest risk tolerance.
While these actions occurred while Bonilla was at David Lerner, it is possible that such offending trades also were recommended while Bonilla was a representative for Prudential.
Due to Bonilla’s failure to conduct reasonable diligence in investigating the investments, there were potential risks and costs of the investments, among other things, that Bonilla did not adequately understand. Accordingly, Bonilla violated the rules of FINRA, the regulator overseeing securities brokerages.
Bonilla did not perform reasonable diligence on the fund prior to recommending it to customers. Bonilla could describe little about the fund’s holdings, beyond that some of the fund holdings were “midstream” energy companies.
Bonilla did not know how the fund paid its monthly distributions. Further, Bonilla did not know what, if any, diligence David Lerner Associates performed on the fund or its holdings prior to offering shares of the funds to customers. During the period between the fund’s initial offering in July 2014 and December 2015, the fund’s net asset value declined by more than 40%.
Bonilla also recommended illiquid investments in a limited partnership sold to customers of David Lerner Associates. Limited partnerships are known to be extremely risky investments. The limited partners for the partnerships in question invested in common unit ownership interests in the partnership. The limited partnership was formed to acquire and develop oil and gas properties located onshore in the US. The partnership was a “blind pool”, meaning at the time of the initial offering the partnership had not identified any properties for acquisition.
Just as with the funds, Bonilla did not perform reasonable diligence on the limited partnerships prior to recommending to his investors. Finra regulators stated, “Bonilla did not know how the partnership generated funds to pay investors monthly distributions. Bonilla did not know how the price of the common units reflected on customer account statements were calculated. Bonilla did not read the full prospectus nor did he review the partnership’s financial statements.”
These offenses constitute suitability fraud. These high risk investments carry higher commissions with their higher risks.