/RIA Settles Charges of Multi-Million Dollar Scheme

RIA Settles Charges of Multi-Million Dollar Scheme

WHAT HAPPENED?

On June 7th, 2018, a final consent judgment was entered against a Washington-based investment adviser (“Defendant”) after he mislead more than 100 investors to invest in his funds by providing fraudulent information in breach of his fiduciary duty. The Defendant also allegedly “indiscriminately commingle[d] fund assets to satisfy the funds’ liquidity needs.”

The SEC complaint explains that the Defendant allegedly improperly spent money from the funds on his own personal expenses including:

(1) living in a fund-owned home for three years, rent-free, making mortgage payments totaling close to $140,000 from the fund’s assets;

(2) allocating roughly $150,000 to cover personal tax liabilities; and

(3) spending approximately $40,000 in travel expenses to attend seminars in remote, luxury resort locations.

Without admitting or denying the SEC’s allegations, the Defendant settled to enter the final judgment ordering disgorgement of $840,779, plus prejudgment interest of $110,823 and a civil penalty of $320,000.  The final judgment also imposes a “conduct-based injunction” that prohibits the Defendant from issuing, purchasing, offering or selling any security other than for personal accounts.

WHAT DOES THIS MEAN FOR ME?

Although this may be an extreme example, it serves as an important reminder of an adviser’s fiduciary duty and obligation to accurately disclose fees.  As a fiduciary, it is important for advisers to disclose any conflicts of interest and act in the best interest of the client.  Failure to do so can lead to a public enforcement action, such as this one.

If you have any further questions or concerns about this case, please reach out to Fairview® directly.

About the Author:

Fairview®
Founded in 2005 with the goal of developing streamlined back office solutions for investment advisers, Fairview® is now servicing investment advisers, foundations and funds with over $185 billion in collective assets.