- February 12, 2021
- David Lerner Associates
Charles Bonilla (CRD # 2572107) is a former Financial Advisor at David Lerner Associates in Boca Raton, FL. Charles Bonilla was in the securities industry from 1994 through 2019 and also worked for Pruco Securities, Scottrade and T. Rowe Price.
According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), on February 8, 2021, Charles Bonilla was sanctioned by FINRA. Charles Bonilla was suspended for five months and fined. The basis for the sanction was allegedly selling David Lerner’s proprietary energy securities to customers without first understanding the product, which prevented him from adequately explaining it to the client. According to the FINRA sanction:
“Without admitting or denying the findings, Bonilla consented to the sanctions and to the entry of findings that he recommended that his customers invest in securities without having a reasonable basis to believe those investments were suitable. The findings stated that Bonilla recommended investments in a mutual fund created for customers of his member firm. Bonilla did not perform reasonable diligence on the fund prior to recommending it to customers. Bonilla could describe little about the fund’s underlying holdings, beyond that some of the holdings were midstream energy companies. Bonilla did not know how the fund paid its monthly distributions or what, if any, diligence his firm performed on the fund or its holdings prior to offering shares of the funds to customers. Without sufficient understanding of these fundamental features or risks of the fund, Bonilla recommended that his customers collectively invest over $250,000 in the fund, for which he received $4,355.72 in commissions. The fund’s net asset value declined by more than 40%. Bonilla also recommended illiquid investments in a limited partnership sold to customers of his firm. Bonilla did not perform reasonable diligence on the partnership prior to recommending the investment to customers. Bonilla did not know how the partnership generated funds to pay investors monthly distributions or how the price of the common units reflected on customer account statements were calculated. Bonilla did not real the full prospectus nor did he review the partnership’s financial statements. Without a sufficient understanding of fundamental features and risks of the partnership, Bonilla recommended that his customers collectively invest over $650,000 in the partnership, for which he received $18,061.31 in commissions. Later, the partnership notified its common unit holders that it was suspending distributions until further notice.”
For a copy of the FINRA Sanction, click here
Charles Bonilla has one additional disclosure on his BrokerCheck, which is an employment terminatin from Scottrade for engaging in a “business activity without receiving proper approval prior to the business activity.”
For a copy of Charles Bonilla’s BrokerCheck, click here.
David Lerner has come under close scrutiny recently due to its sale of proprietary energy related products, including Energy 11, LP, Energy Resources 12, LP and Spirit of America Energy Fund. The Wolper Law Firm, P.A. is currently representing clients in arbitration claims to recover investment losses in these products.
The Energy 11 Fund is a privately held investment company formed for the purpose of acquiring and developing oil and gas properties located onshore in the United States. As per the Energy 11 prospectus, it sought to purchase an “11.5% working interest in approximately 215 existing producing wells and approximately 262 future development locations in the Sanish field located in Mountrail County, North Dakota.” The oil and gas lease leaseholds consisted of both producing and non-producing properties. In other words, Energy 11 was speculating that non-producing leaseholds would eventually bear fruit.
Energy 12, a similar fund, was formed for the purpose of acquiring “working and other interests in producing and non-producing oil and natural gas properties in the United States and utilize third-party operators to manage the day-to-day operations. Our primary purposes are to generate revenue from the production and sale of oil and gas from the properties we acquire, participate in drilling and other exploration and development activities initiated by the operates of such properties, and distribute cash to our partners.” Energy 12 also engaged in drilling operations as per its prospectus.
David Lerner, as the “Managing Dealer” of the offering, sought to raise $2 billion in capital by selling up to 100 million units of Energy 11 and an additional 17 million units of Energy 12 for a total of $350 million. If David Lerner was able to fully subscribe both offerings, it was poised to receive selling commissions of $120 million for Energy 11 and $21 million for Energy 12. According to David Lerner’s website, it closed the offering period for Energy 11 after selling only $374 million worth of its units. Based on this subscription level David Lerner likely received selling commissions of nearly $23 million on Energy 11 even though the offering was undersubscribed.
The breakdown of compensation to David Lerner is telling about how these products were marketed. David Lerner received a staggering 6% sales commission for selling its own product and an additional “4% of the gross proceeds of the common units sold as outlined in the Prospectus.” There are also “incentive payments” contemplated by the Prospectus that further enhance David Lerner’s compensation.
The Prospectus sets forth quite clearly how David Lerner intended to market these lucrative products en masse. Indeed, the Prospectus provides a reimbursement allowance for David Lerner to hold “seminars,” provide free “food” to customers and attend “trade shows” in order to make all-expenses-paid presentations to any and all who would listen.
Unlike Energy 11 and Energy 12, the Spirit of America Energy Fund is publicly traded. “The investment objective of the Energy Fund is to provide investors long-term capital appreciation and current income…by investing at least 80% of its net assets plus any borrowings in a combination of securities and other assets of energy and energy related companies,” including master limited partnerships. In reality, SOAEX invested close to 95% of its assets in energy related companies.
SOAEX was equally as lucrative for David Lerner and its brokers. The maximum sales charge permitted was 5.75%, meaning that Financial Advisors could charge customers high front-end commissions for purchasing this speculative security. An additional 1% deferred sales charge would be incurred if the customer sold SOAEX within one year of purchase.
These investments have declined precipitously and the Energy 11 fund has ceased paying its dividend. The Energy 12 and Spirit of America investments now pay a reduced dividend. In February 2021, David Lerner “marked down” the valuation of Energy 11.
Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.
Reasonable basis suitability requires that a recommended investment or investment strategy be suitable or appropriate for at least some investors. Reasonable basis suitability requires an advisor to conduct adequate due diligence so that he or she can determine the risks and rewards of the investment or investment strategy.
Quantitative suitability requires a brokerage firm or financial advisor with actual or de facto control over a customer’s account to have a reasonable basis for believing that a series of recommended transactions – even if suitable when viewed in isolation – is not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile. No single test defines excessive activity, but factors such as the turnover rate, the cost-equity ratio, and the use of in-and-out trading in a customer’s account may provide a basis for a finding that a member or associated person has violated the quantitative suitability obligation.
Customer-specific suitability requires that a member or associated person have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer’s investment profile. Among the criteria that a financial advisor must evaluate to satisfy his or her customer-specific suitability obligations include the investor’s:
• Other investments
• Financial situation and needs
• Tax status
• Investment objectives
• Time horizon
• Liquidity needs
• Risk tolerance
• Any other information disclosed by the customer
The Wolper Law Firm, P.A. represents investors nationwide in securities litigation and arbitration on a contingency fee basis. Matt Wolper, the Managing Principal of the Wolper Law Firm, P.A., is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at 800.931.8452 or by email at firstname.lastname@example.org.