A New York broker-dealer has gone to federal court trying to quash an arbitration claim by a Utah couple who say they lost more than $2 million with one of its former brokers, a man barred by regulators for soliciting investments in cannabis businesses.

Purshe Kaplan Sterling Investments, also known as PKS, filed an injunction in the U.S. District Court in Utah trying to stop the two investors, retired couple Jeff and Carol Thomsen, from pursuing claims against the firm with the Financial Industry Regulatory Authority. The Thomsens say they were once “longtime” clients of Adam E. Nugent, a broker registered with PKS from 2017 to 2018 and who has since been barred by both Finra and the Securities Exchange Commission.

The SEC settled fraud charges against the Salt Lake City-based Nugent in early 2023 after claiming that he and his firm, Foresight Wealth Management, defrauded 80 investors after offering them limited partnership interests and promissory notes in a private fund called Agronomic Capital LP, which invested in holding companies involved in cannabis farming, processing, distribution and retail sales. Foresight and Nugent raised about $19.5 million for Agronomic from these 80 investors.

The agency alleged, among other things, that Nugent and his firm had conflicts of interest because they owed a duty to Agronomic Capital as its advisor but also to his own advisory clients, who were solicited to invest in syndicate transactions. The SEC also said Nugent and Foresight made inadequate disclosures about one of the underlying investments’ failing operations and made wrongful payments to Nugent.

PKS has claimed in its injunction and restraining order that the Thomsens were not ultimately company customers, that they didn’t purchase their Agronomic shares from PKS and that Nugent did this business on his own outside the company’s purview.

“There is no written agreement between PKS and the Thomsens compelling PKS to arbitrate the Thomsens’ purported claims, and the Thomsens were never ‘customers’ of PKS,” says the PKS suit. “Accordingly, the Thomsens have no right to force PKS to arbitrate their purported claims.”

“It is undisputed that the Thomsens did not purchase their investments in Agronomic from PKS,” says the complaint. “The Thomsens also do not allege that Nugent sold them the Agronomic investments in his capacity as a registered representative of PKS. To the contrary, the Thomsens describe Nugent’s sales of the Agronomic investments to the Thomsens as one of ‘his private securities transactions’ and an ‘outside business activity’ separate from PKS.”

PKS and its lawyers did not return a call seeking further comment beyond the filing.

Normally, Finra arbitration proceedings are not made public before a panel decision. But in this case, the complaint is part of the public record now that it’s been introduced in a federal court proceeding.

The Thomsens are seeking unspecified damages. Their attorney, Jonathan Kurta of Kurta Law in New York City, said that PKS’s business model is the problem—that it has many RIAs under its umbrella that it is not properly overseeing, and that the firm has been sanctioned before.

Just two weeks ago, PKS was fined $40,000 by Finra and forced to pay $16,000 in restitution for its role in selling limited partnership interests in GPB Capital after that troubled firm had delayed filing updated financial audits. GPB, a firm charged by the SEC with defrauding thousands of investors in a Ponzi-like scheme, has ensnared dozens of other broker-deals in legal headaches and at least two have shut down.

“Finra and the SEC have held that if a broker is involved in securities transactions and they are registered through your firm you need to supervise those transactions whether they are done through the firm or not,” Kurta said to Financial Advisor. He added that his firm has represented investors in dozens of cases against PKS over the years, all of which have resulted in confidential settlements.

Nugent, who did not return a call seeking comment, has filed for bankruptcy.