Joshua David Nicholas, Formerly of Merrill Lynch, Barred by FINRA Following Allegations of Converting Customer Funds

INVESTORS: Former Merrill Lynch broker Joshua David Nicholas was barred by FINRA following allegations that he converted customer funds.

Joshua David Nicholas (CRD#: 6529944) was registered as a broker with Merrill Lynch from February to July of 2020. Previously, Nicholas was registered as a broker with Midtown Partners in August of 2016.

Nicholas has five disclosures on his BrokerCheck report.

January 2022 Regulatory Judgment

Status: Final

Initiated By: FINRA

Allegations: Without admitting or denying the findings, Nicholas consented to the sanction and to the entry of findings that he converted customer funds. The findings stated that Nicholas engaged in futures contracts through an outside business activity (OBA). Two of Nicholas’s OBA customers lost more than $1 million as a result of his futures trading.

In a purported effort to recoup some of their losses, Nicholas convinced the customers to invest $300,000 in a promissory note with his OBA so that entity could invest the additional funds in securities on their behalf.

However, Nicholas transferred $280,000 from his company’s bank account to his personal bank account and spent approximately $58,000 of these funds on personal expenses. The findings also stated that Nicholas provided the customers with a fictitious brokerage statement containing material misrepresentations.

After executing the promissory note, Nicholas’s customers repeatedly asked him to provide a copy of the company’s account statement to show them whether and how the proceeds of the note had been invested.

In response to these requests, Nicholas prepared and emailed a copy of a brokerage statement purporting to show that his company had opened a brokerage account at a FINRA member firm, and that the account owned a number of securities to secure the note.

The brokerage statement stated, among other items, that the account was in the name of Nicholas’s company, that the account held shares of certain equity securities, and that the account had earned approximately $72,000 in dividend income that month.

In fact, Nicholas had fabricated the document. Neither Nicholas’s company nor he had an account at the firm, and neither his company nor he owned any assets custodied at the firm. The claims in the fabricated statement were therefore false.

The findings also included that Nicholas engaged in an undisclosed business activity. Nicholas failed to provide written notice to his member firm that he was engaged in an OBA involving the corporate entity he formed and through which he traded futures contracts. Nicholas did not receive approval from the firm to engage in his OBA.

Moreover, Nicholas falsely attested in a firm annual compliance certification that he did not engage in any OBAs. FINRA found that Nicholas engaged in an undisclosed private securities transaction.

The promissory note that Nicholas solicited his OBA customers to invest $300,000 in was a security and Nicholas participated in this private securities transaction away from the firm. Nicholas failed to either provide prior written notice to the firm or receive prior written permission from the firm prior to engaging in the transaction.

Resolutation: Acceptance, Waiver & Consent (AWC)

Sanctions: Bar (Permanent)

Registration Capacities Affected: All Capacities

Duration: Indefinite

Start Date: 1/24/2022

December 2020 Regulatory Judgment

Status: Final

Initiated By: National Futures Association

Allegations: The Business Conduct Committee of the NFA issued a Complaint against JDN Capital, LLC (JDN Capital) and Joshua David Nicholas (Nicholas). The NFA’s complaint alleges that, on September 11, 2020, NFA’s Executive Committee issued a Member Responsibility Action (MRA) against JDN Capital, LLC, and Associate Responsibility Action (ARA) against Joshua David Nicholas.

The action resulted from JDN Capital and Nicholas having failed to cooperate with NFA by not producing documents and information that NFA has requested during its investigation of them.

The investigation involved a $300,000 loan that JDN Capital and Nicholas solicited, using misleading information, around May 2020 from their former managed account customers to purchase securities in JDN Capital’s name, in exchange for a promissory note that guaranteed 17% annual interest.

However, around the time of the loan, Nicholas deposited $225,000 into a personal trading account at a NFA Member futures commission merchant (“FCM A”) and is using those funds to conduct futures and other trading.

Therefore, NFA requested JDN Capital and Nicholas produce bank records and other information so NFA could determine, among other things, what JDN Capital and Nicholas did with the loan proceeds, including whether Nicholas misappropriated the money to fund his personal trading account, contrary to the terms of the promissory note.

NFA was also unable to determine whether JDN Capital and Nicholas entered into other loans and, if so, the loan amounts and what JDN Capital and Nicholas did with the proceeds.

On November 9, 2020, approximately two months after the issuance of the MRA/ARA, Nicholas offered to repay the loan to Mrs. Doe’s Family Trust using money from his personal trading account at FCM A, in exchange for having the restrictions imposed under the MRA/ARA terminated.

Accordingly, on November 16, 2020, NFA issued a “Notice and Order Terminating Member Responsibility Action and Associate Responsibility Action under NFA Compliance Rule 3-15” (Notice and Order) because, among other reasons, Nicholas had repaid the $300,000 loan to the Does and NFA had obtained information that it sought during the investigation, though not from JDN Capital and Nicholas.

he Complaint charges JDN Capital and Nicholas for failing to cooperate in NFA’s investigation by refusing to produce their bank records and other documents and information that NFA had requested from them in order to determine, among other things, what JDN Capital and Nicholas did with the proceeds of the loan from Mrs. Doe’s Family Trust.

Although Nicholas eventually provided NFA with a copy of the promissory note, he waited until after the MRA/ARA was issued to do so. Further, the copy of the promissory note that Nicholas submitted to NFA was heavily redacted to obscure its material terms.

Nicholas also failed to cooperate with the terms of the MRA/ARA by violating the MRA/ARA’s trading restriction. The MRA/ARA limited JDN Capital and Nicholas’s trading to liquidating existing positions only.

However, NFA learned from FCM A that Nicholas had engaged in a significant amount of trading in his personal account on September 14, 2020, after the MRA/ARA was issued.

Nicholas also willfully provided false and misleading information to NFA regarding, for example, the trading and funding of his personal account at FCM A and his employment status with the FINRA member firm.

The Complaint also charges JDN Capital and Nicholas with failing to observe high standards of commercial honor and just and equitable principles of trade.

Resolutation: Decision

Sanctions: Civil and Administrative Penalty(ies)/Fine(s)

Amount: $125,000.00

Sanctions: Shall not reapply for NFA membership or reapply for NFA associate membership; shall not act or become a principal of an NFA member

September 2020 Regulatory Judgment

Status: Final

Initiated By: National Futures Association

Allegations: National Futures Association (NFA) hereby gives notice to JDN Capital, LLC, a registered commodity trading advisor (CTA) Member of NFA, and Joshua David Nicholas, the sole associated person (AP) and the principal of JDN Capital and an NFA Associate that, pursuant to NFA Compliance Rule 3-15, the President of NFA, with the concurrence of NFA’s Executive Committee, has taken a Member Responsibility Action (MRA) against JDN Capital and an Associate Responsibility Action (ARA) against Nicholas.

JDN Capital and Nicholas have failed to cooperate with NFA by not producing documents and information that NFA has requested during its investigation of them.

The investigation involves a $300,000 loan that JDN Capital and Nicholas solicited, using misleading information, around May 2020 from their former managed account customers to purchase securities in JDN Capital’s name, in exchange for a promissory note that guaranteed 17% annual interest.

However, around the time of the loan, Nicholas deposited $225,000 into a personal trading account at a NFA Member FCM and is using those funds to conduct futures and other trading.

Therefore, NFA requested JDN Capital and Nicholas produce bank records and other information so NFA could determine, among other things, what JDN Capital and Nicholas did with the loan proceeds, including whether Nicholas misappropriated the money to fund his personal trading account, contrary to the terms of the promissory note.

The NFA also alleges that Nicholas provided false and misleading information to NFA during the investigation. NFA is also unable to determine whether JDN Capital and Nicholas entered into other loans and, if so, the loan amounts and what JDN Capital and Nicholas did with the proceeds.

Resolutation: Associate Responsibility Action

Sanctions: Suspension

Registration Capacities Affected: From NFA membership and associate membership.

Duration: n/a

Start Date: 9/11/2020

End Date: 11/16/202

August 2020 Customer Dispute

Status: Settled

Allegations: The Trustees allege unsuitable investment recommendations, selling away and omission of material facts in February 2020.

Settlement Amount: $275,000.00

July 2020 Employment Separation After Allegations

Firm Name: Merrill Lynch, Pierce, Fenner & Smith Incorporated

Termination Type: Voluntary Resignation

Allegations: Conduct involving forgery of a client document.

Contact Us Today

The Sonn Law Group is currently investigating allegations surrounding Joshua David Nicholas. We represent investors in claims against negligent brokers and brokerage firms. If you or your loved one experienced investment losses, we are here to help. For a free consultation, please call us now at 866-827-3202 or complete our contact form.