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An Investor’s Nightmare — Part 2

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WEST DES MOINES, Iowa -- Cap Hermann met John Krohn back in 2016.

"I was introduced to John Krohn through a friend of mine."

At the time, Krohn was a broker for Principal Securities, a subsidiary for Principal Financial Group.

"He was one of the top sales people for Principal," says Hermann.

He says that influenced his decision to invest $50,000 in one of Krohn's ventures, Spotlight Innovation.

"I said, 'This guy is top-notch.  He's in the Principal hall of fame.  He knows how to sell.'"

Watch Part 1 of Sonya Heitshusen's series here

Krohn sold securities for Principal out of an office along Westown Parkway in West Des Moines until 2017.  At the same time, he was soliciting Principal clients to invest in his own business ventures.  In the financial industry, that's called "selling away."  It's prohibited because it can put investors at significant financial risk.

“So a brokerage entity would typically have a set of standards for the kinds of investments their employees could sell or offer to clients," says Drake University Law Professor, Matt Dore'.  "And if some broker is "selling away," it’s typically because he or she is selling something that’s not approved by the company, or maybe they have some outside interests they haven’t disclosed to the company and they’re soliciting investments for that... It is a securities law violation under the FINRA standards."

Last year, FINRA, The Financial Industry Regulatory Authority, fined and suspended Krohn for "selling away."  FINRA documents show Krohn made "more than two dozen purchases, totaling $7.9 million... outside the scope of Krohn's employment with Principal Securities and he did not notify his firm about those transactions, his role in them and whether he received or expected to receive selling compensation."

Krohn is now facing another FINRA "selling away" investigation based on a complaint filed by a man named Mike Kemery.

According to FINRA and other documents obtained by Channel 13, Kemery and his family lost $28 million by investing in Krohn's ventures, while Krohn was employed as a broker for Principal.

But there's debate over whether Kemery is a casualty of Krohn or an alleged accomplice.

According to Iowa Secretary of State records, Kemery was the President of Gooi Global and served on its Board of Directors until his resignation in September of last year.  Filings from the Securities Exchange Commission show Kemery was also a principal in K-4 Enterprises, an entity partially owned and controlled by Krohn.  And a lawsuit, filed by a former Gooi Global employee, names both Krohn and Kemery as defendants.  It alleges they operated a PONZI scheme and engaged in fraudulent business practices.

Ted Sporer, the attorney for the plaintiff, believes the lawsuit is the tip of the iceberg.

"Mr. Kemery and Mr. Krohn are probably in the beginning stages of what will probably end up being extensive litigation with numerous people," says Sporer.

Kemer's attorney insists his client did nothing wrong.  Andrew Stoltman declined an interview, but issued this statement:  "To be clear, Mike Kemery is a massive victim of Krohn... with no role in this devastating scam."

Stoltman is trying to help Kemery recoup his $28 million - not from Krohn - but from Principal.

"The question is:  Can you find someone who can pay?" says Dore'.  "They [Principal] might have a deeper pocket, depending on if the broker himself has enough assets to pay damages."

Kemery's attorney asserts Principal should have exercised better oversight over Krohn, who left Principal in 2017.

"The question of oversight is a difficult question, because obviously, the brokerage firm can't have its eyes and ears everywhere, but there are certain standards or expectations of disclosure by the employee," says Dore'.

"I think people who Mr. Krohn solicited to invest, while he was employed at Principal, may have claims against Principal, says Sporer.

Herman says he naively assumed Principal had some kind of involvement in his investment in Spotlight Innovation.

"It was a Principal office because there was a big sign right behind his desk that said Principal Financial."

We found Krohn at his new, K-4 office.

He categorically denies the allegations of fraud and running a PONZI scheme.  In fact, he says he's raising large amounts of capital to save shareholders.

"I'm raising money personally to put back into those companies... I'm focused on making sure these things are successful and we ask those people to be patient."

Hermann's patience has run out.

Principal declined our requests for an interview.  So did Krohn's attorney, but he told us in an email that Krohn's role has been to assume control of a struggling company [Spotlight] in an attempt to turn it around.  He denies any impropriety took place and tells us that 2017 SEC filings show that "Krohn and his business partner are by far the largest shareholders and largest debt holders in the company, investing substantial capital in an effort to fulfill Spotlight Innovation's mission."

If you feel you've been wronged by a financial advisor, the Iowa Insurance Division wants to hear from you.  It regulates financial advisors and also offers advice on how to protect your investments.  You can reach IID by calling 877-955-1212.  You can check your financial advisor's background at https://brokercheck.finra.org/

Adil M. Khan vs Gooi Global, Inc., K4 Enterprises LLC, Morelity, LLC John Kroh and Michael Kemery

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