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PW exclusive: Experts question business dealings of UNC Board of Governors member

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Thom Goolsby (Image: YouTube)

Thom Goolsby, a former North Carolina state Senator now serving on the UNC Board of Governors, is running an “online financial education” company that might run afoul of a state order barring him from the financial services industry, a Policy Watch investigation has found.

Two securities law experts who have examined the business’ offerings at Policy Watch’s request say Goolsby could be violating the spirit – and potentially the letter – of the order [2], issued in April 2014 by the office of the North Carolina Secretary of State.

“It certainly has the aroma that he’s gone beyond the consent decree in terms of what he’s offering to people who donate to this,” said Tom Hazen, a UNC-Chapel Hill law professor with expertise in corporate, securities and commodities law.

Goolsby left the state Senate in 2014, shortly after the collapse of an investment company he’d run with a partner since 2010. Former clients of the company filed a lawsuit [3] in 2013 in which they claimed to have lost tens of thousands of dollars in risky investments to which they said they never consented. Eventually, the state dissolved the company and revoked Goolsby’s investment adviser registration.

In a consent order outlining an agreement with the Securities Division of the Secretary of State’s office [2], Goolsby and his partner were barred from seeking registration as investment advisers, investment adviser representatives, dealers or salesmen for 10 years.

They were also ordered to “desist from engaging in any conduct or practice involving any aspect of the securities or financial services business and from transacting any business as an investment adviser, investment adviser representative, dealer, or salesman in this State.”

Goolsby resigned from the Senate [4] in August of 2014, before finishing his second term. He said he wanted to spend more time with his family.

But Goolsby, a Wilmington lawyer and lobbyist – and currently an appointed member of the powerful UNC Board of Governors, which sets policy for the 17-campus university system – did not stay away from the investment world for long.

Goolsby registered Charting Wealth, LLC [5] in Las Vegas, Nevada in March of 2015 – just a year after his agreement with the Secretary of State’s office.

Nevada is an attractive locale for startup LLCs as it offers one of the more lax regulatory environments in the country. The formation of single-person corporations is allowed and businesses can be registered very quickly. There are no requirements for operating agreements or annual meetings. There are also no state income, corporate or franchise taxes. It is, along with Texas, one of only two states with no formal information-sharing agreement with the IRS.

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Goolsby registered Charting Wealth, LLC in Las Vegas, Nevada in March of 2015 – just a year after his agreement with the Secretary of State’s office.

Today, Goolsby promotes a “Charting Wealth” website [7] and provides daily market analysis via a YouTube channel [8]. He also sells a self-published book [9], “Charting Your Way to Wealth: Make Millions in the Market by Learning to Recognize and Follow Stock Trends.”

According to the company’s materials, it teaches investors how financial markets work and ways to recognize and exploit trends.

But Goolsby also solicits donations via the crowd-funding site Patreon [10], through which he offers paying “patrons” the opportunity to receive “live Monthly Q&A,” “personal monthly training calls” and, for those who contribute a the highest level, a “five-day intensive training.”

The Securities Division in the Secretary of State’s office is aware of the business, said spokesperson Liz Proctor. Asked whether there is an ongoing investigation into Goolsby’s activities, Proctor said it is the office’s policy not to confirm or deny investigations.

The Division did not provide comment for this story and declined to make available the original complaints that gave rise to the 2014 order, saying they are documents related to a criminal investigation. Goolsby declined to answer questions about Charting Wealth or the order barring him from the industry.

Empowered Investor Inc.

Goolsby’s trouble in the financial services business began with Empowered Investor Inc., a company he started with his partner James Upham in their hometown of Wilmington in 2010.

Upham was registered with the state as an investment adviser representative. Goolsby, because of his 50 percent ownership of the company and his engagement in its management, was automatically registered as an investment adviser representative as well, according to the consent order.

From 2010 to 2013, according to the Secretary of State’s office, Goolsby and Upham hosted a weekly radio show from Topsail Beach, in which they discussed investment strategies and solicited customers for their firm.

The show – and the firm – rose along with Goolsby’s political career. The former head of the New Hanover County Republican Party, Goolsby first won a seat in the state Senate in 2010.

In not quite two terms, Goolsby built a reputation as a conservative firebrand. In a 2013 op-ed [11]published in the Chatham Journal, the senator dubbed the NAACP-led “Moral Monday” protests “Moron Monday,” comparing them to a circus “complete with clowns, a carnival barker and a sideshow.”

Meanwhile, Goolsby and Upham promoted an investment method they called the “10-20-50 Plan.” Investments that lost more than 10 percent would be sold to prevent further losses. Investments that earned more than 20 percent would be sold to capture the gains and no more than 50 percent of the clients’ account value would be invested in securities at any one time.

A “security” is broadly defined as any negotiable financial instrument – such as stock in a publicly traded corporation or a government bond – that has a monetary value.

According to both the Secretary of State’s office and a July 2013 lawsuit brought by 10 clients [3], the firm did not follow its own “10-20-50 Plan” when investing for its clients, leading to far greater losses than if it had.

Instead, the former clients said, Empowered Investor Inc. took their portfolios – mostly retirement and savings accounts containing conservative, long-term investments – and sold their holdings to purchase “speculative, high-risk and volatile investments.” The former clients – most in their 50s and 60s, one 70 years old – were charged an annual management fee of two percent of their assets, according to the suit.

The following is excerpted from the consent order:

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According to the lawsuit complaint, two clients, Deborah and Martin Brittingham, brought one trust account and three Individual Retirement Accounts (IRAs) to Empowered Investor. They began, in January and February of 2011, with a total opening value of $237,919.55. When the couple transferred their investments from Empowered Investor in April and May of 2012, the total value was $157,146.52. Their total loss was $80,773 – about 34 percent.

The complaint also stated that the Curley family – James, Cynthia and their son Doug – brought a total of seven IRAs and one individual account for James to Empowered Investor between August 2011 and January of 2012. Their total worth, according to the complaint, was $235,441.42. When the family transferred its investments from the firm in July and August of 2012, their total value was $135,318.60. The family’s total loss was $100,122.82 – about 42.5 percent.

During the period of the Curley family’s investment, the suit points out, “the stock market was steadily going up,” with the S&P 500 increasing by about 16 percent.

The former clients voluntarily dismissed their lawsuit in September of 2013 and entered into arbitration to settle the dispute. But the formal complaints they filed with the Securities Division of the Secretary of State’s office led to an investigation, the dissolution of the company and the agreement barring Upham and Goolsby from the industry.

Policy Watch reached out to some of Empowered Investor’s former clients and one of their attorneys in the resulting suit. H. Mitchell Baker III, one of the lawyers who represented those clients, confirmed the settlement included a non-disclosure agreement.

“Mr. Goolsby is a very nice gentleman, we have worked together and I respect his abilities as a lawyer,” Baker said in an interview with Policy Watch. “He just got into an area here outside of the practice of law.”

Goolsby appears never to have spoken publicly about the company or the order since it was finalized, but Melissa Gott, the attorney who represented him in 2014, gave a written statement at that time to WRAL [13].

“This is a business that was ultimately not a success,” Gott said in the statement. “Thom Goolsby dedicated a great deal of energy and his own money in this venture. He never received even one paycheck. However, he worked hard to see to it that all the debts of the corporation were paid and investors compensated. That’s just the kind of person he is. Thom Goolsby was never a registered investment adviser. For many months he co-hosted a radio show where he talked about trading in the stock market.”

Despite Gott’s statement to the contrary, the consent order states that, as a 50 percent owner of Empowered Investor who engaged in its management, Goolsby was automatically registered as an investment adviser.

Charting Wealth, LLC

Charting Wealth, LLC – the company founded by Goolsby after his investment firm dissolved – shares some similarities with his previous enterprise.

Goolsby still hosts a show where he talks about investing – this time on YouTube. He also does it while holding a prominent political position.

In March of 2015, shortly before Charting Wealth was registered in Nevada, the state Senate elected Goolsby to the UNC Board of Governors after he was nominated by Sen. Bill Rabon, an influential Brunswick County Republican. Goolsby was reelected earlier this year.

As a board member, he has frequently taken to YouTube [14] to editorialize on polarizing board issues.

YouTube is also a primary way he promotes Charting Wealth.

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Last week, Charting Wealth touted how to find ‘Killer Trading Profits’ on its Facebook page. (Image: Facebook)

Goolsby says he can unlock knowledge about the market to those looking to make money if they follow his training.

“The results will be slow, but they will be amazing and they will come,” Goolsby wrote in an August 2016 post on the Charting Wealth website [16]. “This is not a get-rich-quick scheme. It is simply a get rich plan.”

Goolsby’s advice to investors is to look for “easier, more sure-fired methods of predicting price movement” by watching the Moving Average Convergence/Divergence indicator [17] and the Derivative Oscillator indicator [18]. He promotes the Heiken-Ashi “candlestick” technique [19] for charting price movements. These are not investing methods Goolsby invented but existing ideas, some of which are hotly debated among investment professionals and amateur investors.

Goolsby offers stock alerts [10] via text for investors – which he characterizes as “very valuable information!”

Securities law experts say the way he pitches personalized, one-on-one sessions with those who donate at his Patreon page raises serious questions about whether he is crossing a line into investment advising.

At $30 a month – which Goolsby calls the “Buddy” level – he offers, among other things, a live Q&A “where we analyze the stocks you suggest!”

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Social media memes are a common tool for Charting Wealth. (Image: Facebook)

At $100 a month – the “Best Friend” level – he offers a “personal monthly 15 minute training call from Thom.”

At $15,000 or more per month – the “BFF” level – he offers a “Personalized five day intensive training (food and lodging included!)”

Yet, even while offering knowledge that he says can help investors get rich, Goolsby makes multiple disclaimers.

“We offer NO advice and make NO claims to expertise of any kind,” says one such disclaimer on his Patreon page [10]. “This site is dedicated to knowledge and education through our stock chart training, reviews and other information – nothing more.”

“Very troubling”

James D. Cox is the Brainerd Currie Professor of Law at Duke University. He has expertise in corporate and securities law.

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James D. Cox, Duke University School of Law

After examining the order from the Secretary of State’s office and Goolsby’s current business, Cox said Goolsby is probably in the clear if he wants to write a book or host a show about investing. While those things are conduct related to the industry, Cox said they would likely be considered commercial speech protected by the First Amendment.

But offering Q&As on specific stocks suggested by investors, giving 15-minute phone trainings and five-day, intensive in-person sessions would be more problematic, he said.

“The minute he starts looking at somebody and saying something specific to an investor’s portfolio, then he’s going to run afoul of this order,” Cox said.

“I think the Q&A would be very dangerous for him,” he said.

Tom Hazen, the Cary C. Boshamer Distinguished Professor of Law at UNC, agrees.

After examining the order as well as the Charting Wealth websites and some of the videos, Hazen said the personal conversations and trainings mimic what a financial or investment adviser would do.

“That part is very troubling,” Hazen said.

If Goolsby is responding to questions like “Should I do this?” and “What are my risks if I do this?” Hazen said – even if he responds carefully – he is in adviser territory.

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Thomas Lee Hazen is the
Cary C. Boshamer Distinguished Professor of Law at UNC.

“What he would probably argue is ‘I’m not giving advice one way or another. I’m not making recommendations. I’m just responding to questions about something the investor is recommending,’” Hazen said. “But I think it would be a very close call.”

If officials in the Secretary of State’s office are aware of the specifics of Goolsby’s business, Hazen said, they are the ones who will have to make the ultimate call.

But their capacity for thoroughly examining every case is limited, he said. “Like most regulators today, they are understaffed and overworked.”

It is not clear whether the “patrons” of Goolsby’s Patreon site – whose names and specific donation and reward levels are not public – live in North Carolina or elsewhere. As of this week, Charting Wealth’s Patreon page claims 38 patrons and $1,144 in contributions per month [10].

It is also unclear whether the locations in which his patrons reside would have any impact on whether he could have violated the order. The Securities Division had no comment on those or other specifics of the case.

It’s also unclear whether Goolsby’s involvement with Charting Wealth is known to many of the North Carolina lawmakers who approved his nomination to the Board of Governors, or to the board members who serve with Goolsby.

Board of Governors Chairman Harry Smith didn’t respond to Policy Watch interview requests. Neither did Rabon, who chairs the Senate’s Select Committee on Nominations [23].

But state Rep. Marcia Morey (D-Durham), a member of the House’s Committee on Education-Universities [24], said the order from the Securities Division and current work raise serious questions about his fitness as a member of the UNC Board of Governors.

“I don’t know if when he was nominated and when the vote was taken if this was common information,” Morey said. “But I think it is important background when you’re talking about a member of the Board of Governors.”

His current business is also troubling, she said.

“He can say he’s not acting as a financial or investment adviser,” Morey said. “But when you look at what he’s doing, when you look at the website, that’s very disingenuous. It’s words and semantics, and it doesn’t match what he’s doing.”