On January 31st, 2018, the Securities and Exchange Commission (SEC) ordered a trial by jury to be held for alleged claims against two investment adviser representatives (advisers) on charged with fraudulent and misleading use of their client’s funds while working for a large, well-known Financial institution in Massachusetts.
From August 2017 through May 2017, both advisers allegedly engaged in multiple schemes to defraud their clients. The schemes were discovered during an SEC exam and specifically include: (1) investing client funds into a fund in which the advisers held a financial interest, without full disclosure of the conflict of interest; (2) secretly allocating client funds to acquire loan financing for their own benefit; and (3) misrepresenting that client funds were being invested in a real estate fund, when in reality the money was being diverted into investments in the adviser’s names and into a personal account. In addition, one of the advisers also defrauded two clients in violation of his fiduciary duties by: (1) receiving a loan from a client on unfavorable terms to said client; and (2) charging a client 50% more in advisory fees than originally quoted.
Both advisers were terminated in June 2017 and invoked in their Fifth Amendment privilege against self-incrimination, refusing to produce documents or answer questions during sworn testimony.
The SEC requests that the court make findings of fact and conclusion of the laws pursuant to Rule 52 and Rule 65(d) of the Federal Rules of Civil Procedure. The trial date has yet to be set.
WHAT DOES THIS MEAN FOR ME?
As part of a vigorous compliance program, advisers should review the management of client accounts to ensure that the firm provides advice consistent with its fiduciary duty. As a fiduciary, it is critical for advisers to disclose any conflicts of interests and act in the best interest of the client. Please contact Fairview if you have any questions or concerns about your compliance program and how it relates to this case.