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Financial Advisor Paul Gallivan Suspended by the SEC for Allegedly Making Misrepresentations

Paul Gallivan(CRD#: 5793918) is a previously registered Broker and previously registered Investment Advisor.

Broker’s Background

He entered the securities industry in 2010 and previously worked for A.G.P. / Alliance Global Partners; Aegis Capital Corp.; Morgan Stanley; and Herbert J. Sims & Co., Inc.

Current And Past Allegations Of Conduct Leading To Investment Loss

According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), in July 2022, the U.S. Securities and Exchange Commission sanctioned Paul Gallivan, ordering him to cease and desist, pay a civil and administrative penalty of $25,000 plus a disgorgement of $26,807 and a penalty of $3,166; in addition, Paul Gallivan is suspended from association with a broker, dealer, investment advisor, municipal securities dealer, municipal advisor, transfer agent or NRSO for twelve months beginning August 8, 2022 and ending August 7, 2023. He is also prohibited from participating in any offering of penny stock for twelve months beginning August 8, 2022 and ending August 7, 2023.

The SEC sanction states, “The Securities and Exchange Commission (the “Commission” or “SEC”) deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”), Section 15(b) of the Securities Exchange Act of 1934 (“Exchange Act”), Section 203(f) of the Investment Advisers Act of 1940 (“Advisers Act”), and Section 9(b) of the Investment Company Act of 1940 (“Investment Company Act”), against Paul F. Gallivan (“Gallivan” or “Respondent”). The Commission finds that these proceedings arise from unsuitable recommendations and misrepresentations to certain retail customers by Paul F. Gallivan in connection with sales of highly complex, variable interest rate structured products (“VRSPs”). From October 2017 through December 2018, Gallivan made unsuitable recommendations of VRSPs to four customers. Most of the customers were senior investors with low or moderate risk tolerances; limited investment experience with structured products; investment time horizons of less than fifteen years; and moderate or higher liquidity needs. The customers also were unwilling to risk losing their entire invested principal from their investments, and they relied on periodic interest payments from their investments to meet their income needs. In recommending VRSPs to the customers, Gallivan described the securities as being similar to “bank bonds.” However, the VRSPs differed from traditional bonds issued by financial institutions in several important ways. First, unlike traditional bonds, which provide periodic fixed-interest payments that are directly linked to a bond issuer’s ability to make periodic payments, and which repay principal at maturity, the VRSPs offer variable interest payments based on formulas tied to differences in Constant Maturity Swap (“CMS”) rates for longer term and shorter-term United States Treasury obligations, as well as to the performance of reference assets, such as certain equity indexes. The VRSPs initially pay fixed introductory or “teaser” rates for one to five years. After the introductory period, additional interest payments are not guaranteed and are contingent on the performance and interplay of the VRSPs derivative components such as the CMS rates and underlying reference indexes. These characteristics contribute to their unsuitability for the customers, who relied on periodic interest payments from their investments to meet their income needs. In addition, most of the VRSPs sold to the customers have maturity periods of fifteen years or more and typically lack active secondary markets, with no assurance of liquidity. These characteristics contribute to their unsuitability for the customers, who had investment time horizons of less than fifteen years and moderate or higher liquidity needs. Also unlike traditional bonds, the VRSPs are “principal-at-risk” securities, which means that the customers can lose some or all of their invested principal at maturity if the VRSPs’ respective reference assets fail to perform within pre-determined ranges at maturity. As several preliminary prospectuses for the VRSPs expressly warn: “There is no minimum payment at maturity. Accordingly, investors may lose up to their entire initial investment in the securities.” This characteristic contributes to their unsuitability for the customers, who were unwilling to risk losing their entire invested principal from their investments. Gallivan made misrepresentations about the risks and characteristics of the VRSPs. Each of Gallivan’s statements were materially false and misleading. Gallivan knew or reasonably should have known at the time that he made the statements that VRSPs are not principal protected. By the foregoing conduct, Gallivan willfully violated Securities Act Sections 17(a)(2) and 17(a)(3).”

In addition, Paul Gallivan has been the subject of six customer complaints, including # that remain pending, including the following:

  • June 2021 — “The SEC investigation entails the sales of Curve Steepener securities.” The U.S. Securities and Exchange Commission opened an investigation into Paul Gallivan.
  • December 2020 — A financial disclosure recorded as a discharged bankruptcy is filed.
  • June 2015 — A financial disclosure recorded as a compromise is filed.
  • May 2015 — A financial disclosure recorded as a compromise is filed.
  • August 2014 — A financial disclosure recorded as a compromise is filed.
  • August 2013 — A financial disclosure recorded as a compromise is filed.

For a copy of Paul Gallivan’s FINRA BrokerCheck, click here.

We Help Investors Recover Investment Losses

In recent years, brokerage firms and Financial Advisors across the country have aggressively marketed and sold Steepener Notes, Adjustable Rate Market Notes, Spread Linked Notes and Structured Notes to retail customers.

Steepener Notes, Adjustable Rate Market Notes and Spread Linked Notes are not traditional investments but rather structured products. During the first 12-24 months, the Steepener Notes, Adjustable Rate Market Notes, Spread Linked Notes and Structured Notes generally pay above-average “teaser” rates of interest. However, for each year thereafter until maturity, which can often be 15-20 years, the interest the interest rate is determined by a complex formula that is correlated to a stock index, such as the S&P 500, a fixed income index or a derivative benchmark such as the Constant Maturity Swap Rate, or CMS Swap rate. Depending on the value of the benchmark, the rate of interest paid to the investor may increase to a cap set forth in the prospectus or decrease to zero. These nuances are set forth in the prospectus of the Steepener Notes, Adjustable Rate Market Notes, Spread Linked Notes and Structured Notes but generally not understood by retail customers.

In addition, some Steepener Notes, Adjustable Rate Market Notes, and Spread Linked Notes have call features. This enables the issuer to call (or redeem) the security prior to maturity if, for example, the interest rate environment requires the issuer to pay higher than expected rates of interest to the investor. Alternatively, if the interest rate environment permits the payment of a lower rate of interest, the issuer is under no requirement to call the security. The call feature creates an imbalanced risk/return environment for the customer, who is often lured into the investment with the prospect of higher investment returns. In reality, to the extent a higher return is warranted pursuant to the prospectus, the issuer has the right to call the security if certain other conditions are met. This eliminates the possibility of the investor continuing to receive the higher income.

The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis.  Matt Wolper, the Managing Principal of the Wolper Law Firm, 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 mwolper@wolperlawfirm.com.

Attorney Matthew Wolper

Attorney Matthew WolperMatt Wolper is a trial lawyer who focuses exclusively on securities litigation and arbitration. Mr. Wolper has handled hundreds of securities matters nationwide before the Financial Industry Regulatory Authority (FINRA), American Arbitration Association (“AAA”), JAMS, and in state and federal court. Mr. Wolper has handled and tried cases involving complex financial products and strategies ranging from traditional stocks and bonds to options, margin and other securities-based lending products, closed/open-end mutual funds, structured products, hedge funds, and penny stocks. [Attorney Bio]