James (“Jim”) Belenis of KMS Financial Fined and Suspended For Improper Sales of Gold Mining Company in Davis California

James D. (“Jim”) Belenis of KMS Financial in Davis, California went off the reservation and ended up in a gold mine.

Mr. Belenis broke FINRA rules. The Financial Industry Regulatory Authority (FINRA) requires that financial advisors disclose to their brokerage firms any outside business activities, so that brokerage firms can properly monitor their employees.

All brokerage firms have systems in place to supervise their financial advisors. Customers might be aware of this when they hear a message stating that their phone call with their financial advisor is being recorded, but proper supervision goes much deeper, and includes review of whether recommended traded are suitable for customers in light of their investment objectives and risk tolerance. Of course, this supervisory system does not protect investors when financial advisors operate outside the system.

That is what Mr. Belenis did; he helped investors invest in a gold mining company without submitting the trades to the supervision of his brokerage firm, which was Raymond James at the time of the trades. (Raymond James terminated Mr. Belenis for violating FINRA rules).

Even worse, Mr. Belenis himself had a stake in the gold mining company whose stock he was selling to investors. It is unclear whether investors knew that Mr. Belenis was himself invested in the gold mining company. While an investor might think that Mr. Belenis is simply putting his money where his mouth is, this ownership interest raises serious conflicts of interest. For example:

• It could be that the gold mining company was teetering on the edge of bankruptcy, and Mr. Belenis recommended it to investors, not because it was a suitable investment, but because he wanted to use their money to keep his own equity stake from being lost in bankruptcy.
• It could be that Mr. Belenis is receiving undisclosed compensation from the gold mining company, as an employee, director, or consultant, which is putting a significant drain on the mining company’s resources and effectively means that a significant percentage of new investor funds are flowing directly into his pocket.
• It could be that Mr. Belenis wants to sell his stake in the gold mining company, so he is using the new investors he is bringing to the company as a way to get someone to buy out his ownership interest.

These potential conflicts are all speculative, but they do highlight why proper supervision of financial advisors is so important, and the gravity of Mr. Belenis’s decision to engage in these investment activities outside of his firm’s supervision.

Mr. Belenis has had five customer complaints which are still visible on BrokerCheck, an online financial advisor lookup tool offered by FINRA. Complaints against Jim Belenis range in time from 1999-2007, and include allegations of inadequate due diligence in recommending investments, misrepresentation, fraud, and failure to execute stop-loss orders.

Mr. Belenis is now at KMS Financial, which has had its own share of compliance and customer issues. According to FINRA, KMS Financial sold one of its clients a $4.3 million stake in a hedge fund without conducting adequate due diligence, failing to notice obvious red flags such as that the fund kept switching accountants and its founder was sanctioned by the New York Stock Exchange. One of KMS Financial’s other financial advisors, Art Heffelfinger, also ran a Ponzi scheme while working at KMS.

If you have questions about investment losses, the securities litigators at Investor Defense Law LLP may be able to help, and offer free initial consultations.

Investor Defense Law LLP is a law firm dedicated to helping investors in California, Georgia and Washington State recover investment losses. We know how to sue investment advisors, brokerage firms, and financial advisors. To learn more, contact an investment loss attorney at 800.487.4660.