Cantone Research denies FINRA claim of loss to investors

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The Financial Industry Regulatory Authority complaint against Cantone Research Inc. contains “blatant misrepresentations,” the dealer-broker said in a statement to the media issued Feb. 16. Echoing comments made to McKnight's Senior Living in November, CRI said it is mounting a “vigorous defense” to all allegations.

In November, FINRA charged the company with fraud in connection with the sales and subsequent extensions of more than $8 million of certificates of participation in five promissory notes executed on behalf of one of several entities controlled by Christopher F. Brogdon, a businessman who is accused by the Securities and Exchange Commission of misusing the funds of senior living investors. CRI served as a placement agent for some of Brogdon's holdings.

Four of the five relevant promissory notes with which CRI was involved have defaulted, FINRA alleged, resulting in about $6 million in losses to investors. CRI, however, maintains that investors have not seen losses from the projects named in the complaint.

“FINRA fails to disclose or acknowledge that the alleged $6 million in supposed losses is, in fact, secured by real estate purchased near the bottom of the post-2008 real estate market,” CRI said. “Each project at issue was appraised by an independent appraisal company at the time of funding; the appraised value back then (at time of purchase) was significantly greater than the secured debt on each project. Accordingly, we believe that the value of the collateral securing each promissory note is greater than the amounts owed to investors.”

CRI said that proceeds from the sales of the projects will provide the funds to pay the full amount of investor principal and interest on each project. “As a matter of fact, one of the four projects that had been in default (Cedala) and which is assumed to be a loss by FINRA in the complaint dated Nov. 20, 2015, was actually sold in late May 2015, six months before the complaint was filed,” CRI said. “Proceeds generated from this sale were more than enough to repay the full principal and interest to investors in that particular project.”

CRI noted that it also underwrote nine municipal bond offerings before 2008 and three private placements after 2008 related to projects that Brogdon also guaranteed. “Even though several of these projects had late payments of interest or forbearance agreements to extend repayment of principal, all of the principal and accrued interest was fully paid to investors on all twelve projects,” the company said.

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