SEC Files Fraud Charges against Investment Adviser for Self-Dealing

The SEC filed fraud charges against a registered investment adviser and its owner for allegedly engaging in self-dealing and for failing to disclose material facts to clients about conflicts of interest, the use of investor funds and the risks of recommended investments.

In a complaint filed in the U.S. District Court for the District of Massachusetts, the SEC alleged that the investment adviser and its owner urged their clients to invest over $40 million in illiquid securities issued by several related companies without disclosing that the owner had an ownership interest in the parent company of these entities and also received payments from them.

Additionally, the SEC's complaint alleges that the investment adviser and its owner made recommendations to their clients to invest in entities that the owner controlled and owned without disclosing that the investments would be used primarily to benefit the company itself. Both entities also are alleged to have advised clients to invest in a consumer loan portfolio while concealing the fact that the owner himself would pocket half of the clients' profits from that investment.

The SEC alleged that both entities violated the antifraud provisions of the federal securities laws and related SEC antifraud rules, and that the company violated, and its owner aided and abetted violations of, SEC rules concerning the custody of client assets and the need to provide timely disclosure of significant events.