SEC Updates

  1. [On September 26, 2019, Cetera Investment Advisers LLC settled an enforcement action with the SEC.  Since at least January 2007, Cetera has paid cash fees to approximately 350 banks to, among other things, solicit investment advisory clients on behalf of Cetera. As part of this process, Cetera did not require the banks to give clients a separate written disclosure document or otherwise provide the information required under the Solicitor Rule. As a result, Cetera’s clients were not informed of the extent of the banks’ financial interest in the clients’ choice of Cetera as an investment adviser and did not have all of the information that would enable them to evaluate the solicitor’s recommendation. By paying cash fees for solicitation activities and not ensuring that advisory clients received the required disclosures, Cetera violated the Solicitor Rule.  Cetera agreed to a $185K fine.]
  2. [Two BMO advisers agreed to pay over $37 million to settle charges regarding their failure to tell clients about certain aspects of how the advisers selected investments in their retail investment advisory program which included the selection of more expensive investments from which BMO advisers profited.]
  3. [Barclays will pay over $6 million to settle charges that it violated the FCPA by hiring the relatives and friends of foreign government officials in order to improperly influence them in connection with its investment banking business.  Many of these “Relationship Hires” were made through an unofficial intern program, but some were also hired through Barclays’ formal intern program, its graduate program, or as candidates for permanent positions.]
  4. [Amadeus Wealth Advisors  and Three Bridge Wealth Advisors both voted client proxies notwithstanding representations in their client advisory agreements and regulatory filings with the SEC that they would not accept or exercise proxy voting authority over client securities.]
  5. [Excessive management fees charged by ECP Manager LP, a private equity fund adviser, following the write-off of a private equity fund investment.  ECP included approximately $3.41 million of invested capital contributions attributable to the warrants in the base amount used to calculate management fees that were charged to the Fund causing the Fund and, ultimately, its shareholders to pay $102,304 more in management fees than they should have paid.]
  6. [The SEC filed a civil injunctive action, charging a New Jersey resident with defrauding an investor by lying about his trading success, concealing trading losses, and misappropriating funds. The SEC’s complaint alleges Gonzalo Ortiz falsely touted his success in investing in stocks and promised the investor a minimum 50% return in a year, and induced the investor to give him control of over $570,000 the investor’s retirement savings. The complaint alleges that contrary to these promises, Ortiz misappropriated almost half of the funds and invested the other funds in high-risk microcap companies that generated significant losses. Ortiz then concealed the misappropriation and losses by providing the investor with a phony account statement that falsely showed high returns. Ortiz misappropriated approximately $224,500 of the investor’s money, and lost approximately $290,000 through his trading.  In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York announced criminal charges against Ortiz.]
  7. [A REIT adviser was operating as an unregistered broker and violating disclosure requirements that sought to cut out broker-dealers by using an internet-based direct-to-consumer model to market and sell shares to investors.]
  8. [Cetera Advisors was charged with breaching its fiduciary duty and defrauding its retail advisory clients by, among other things, failing to disclose conflicts of interest related to the firm’s receipt of over $10 million in undisclosed compensation. Cetera invested and held clients in mutual fund share classes that charged 12b-1 fees – which are recurring fees deducted from the fund’s assets – even when it knew these clients were eligible to invest in lower-cost shares of the same funds without 12b-1 fees.]
  9. [A registered investment adviser and broker-dealer settle charges that it received undisclosed compensation of $1.95 per advisory client trade from its unaffiliated clearing broker, totaling approximately $250,000.]
  10. [Strong Investment Management and its owner, Joseph Bronson, both of whom the SEC previously charged with securities fraud for their involvement in a “cherry-picking” scheme. Today, the Securities and Exchange Commission filed a settled administrative proceeding against Bronson, who has agreed to the issuance of an SEC order permanently barring him.  Bronson’s brother and the former chief compliance officer of Strong, John Engebretson, was also charged in the complaint with failing to perform his compliance responsibilities and ignoring numerous “red flags” raised during the course of the fraudulent scheme. As a result, Engebretson was charged along with Bronson and Strong with violating the compliance requirements of the federal securities laws.]
  11. [Cease-and-desist proceedings against Leonardo Cornide and Jorge Falcon for using investor funds to obtain personal loans and for failing to disclose their personal interest in transactions in which they used additional investor funds.]
  12. [Investment adviser for made materially false statements to investors and prospective investors in a pooled investment vehicle the adviser managed. Induced investors to invest millions in a pooled investment vehicle with the promise of high returns. Told investors and prospective investors that the funds had hundreds of millions of dollars in committed capital, had an exclusive right to all deal flow from an international law firm with thousands of attorneys, and that the investment adviser had approximately $1 billion in assets under management. In truth, the order finds each of these statements was false.]
  13. [Investment adviser and its two principals failed to adequately disclose conflicts of interest.]
  14. [Registered investment adviser agreed to settle charges that it failed to engage in reasonable supervision of a former investment adviser representative, and failed to implement compliance-related policies and procedures in response to red flags about the IARs conduct.]
  15. [Inactive client accounts, e.g. no trades in 12 months.]
  16.  [Charged undisclosed fees to portfolio companies.  Used client assets inconsistent with investment objectives.]
  17. [Violation of Co-Invest Order (no action letter) and conducted principal trades without client written consent.]
  18. [Failed to disclose material conflicts of interest arising from compensation received from a recommended investment. Misled investors who unknowingly purchased the adviser’s interest in that same investment.]
  19. [Failed to disclose conflicts of interest related to receipt of additional compensation from recommendation and sales of alternative investments to advisory clients.]
  20.  [Unregistered investment advisor.  Overstated value of adviser’s own assets.]
  21. [Failed to disclose conflicts of interest and making misleading disclosures to the boards of directors to the funds the adviser advised.]
  22.  [Failed to distribute annual audited financial statements on time. Form ADV falsely stated that the adviser distributed audited financial statements to the fund’s investors.]
  23. [Two undisclosed financial conflicts with respect to the selection of 12b-1 fee-paying mutual fund share classes. Adviser itself acted as an unregistered broker-dealer.]
  24. [Stole money from clients’ accounts and then lied to clients about the withdrawals. Forged client signatures on checks.  Used stolen client funds to pay personal credit card bills and mortgages.]
  25. [Rather than using investor proceeds to make loans, the adviser diverted money to cash-strapped startup portfolio companies of a private fund that was managed by the adviser and concealed those loans from investors.  Charged the fund undisclosed monitoring fees.  Breached the fund’s concentration limits. Concealed concentration limit breaches.]
  26. [Adviser induced investors to invest by falsely representing that their money would be invested using a highly profitable algorithmic trading strategy that had never experienced an unprofitable month and had returned more than 1,600% since inception.  Misled investors by falsifying account statements and making Ponzi-like payments, all while misappropriating investor money for personal use, including to purchase luxury properties and vehicles.]
  27. [Defrauded investors in two private funds which purportedly invested in residential real estate and unspecified “green products.” The adviser promised he would not be paid for managing the funds, but took over $1.1 million of investor money to pay himself and to buy out his former business partner.]
  28. [Adviser made false and misleading statements in a securities offering that targeted Christian investors. A portion of which the adviser used for personal expenses.]
  29. [The amendments include the requirement that all investment advisers registered in Massachusetts provide clients and prospective clients with a one-page, stand-alone Table of Fees for Services (“Fee Table”). The amendments will be enforced starting on January 1, 2020.]