Paul Francis Gallivan, Formerly of Alliance Global Partners, Charged by SEC in Connection with Sales of Variable Interest Rate Structured Products

INVESTORS: Former Alliance Global Partners broker Paul Francis Gallivan was named in an SEC complaint alleging unsuitable recommendations of VRSPs to four customers.

Paul Francis Gallivan (CRD#: 5793918) was registered as a broker with Alliance Global Partners from 2020 until 2022. Previously, Gallivan was registered as a broker with Aegis Capital from 2017 until 2020.

Gallivan has seven disclosures on his BrokerCheck report. Five disclosures relate to Gallivan’s personal financial matters.

July 2022 Regulatory Judgment

Status: Final

Initiated By: United States Securities and Exchange Commission

Allegations: 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).

Resolution: Order

Sanctions: Cease and Desist

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

Amount: $25,000.00

Sanctions: Disgorgement

Amount: $26,807.00

Sanctions: Monetary Penalty other than Fines

Amount: $3,166.00

Sanctions: Prohibition

Sanctions: Suspension

Registration Capacities Affected: association with a broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or NRSRO

Duration: 12  months

Start Date: 8/8/2022

End Date: 8/7/2023

Registration Capacities Affected: Participating in any offering of a penny stock.

Duration: 12  months

Start Date: 8/8/2022

End Date: 8/7/2023

Sanctions: Undertaking

June 2021 Investigation

Initiated By: United States Securities and Exchange Commission

Description of Investigation: The SEC investigation entails the sales of Curve Steepener securities.

Broker Comment: I vehemently deny the allegations made by the Staff of the Securities and Exchange Commission (the “Staff”) and believe that the Staff’s decision to recommend that enforcement charges be brought against me is unwarranted and without merit. I intend to vigorously defend any charges that may be brought against me.

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