The SEC charged the owner of a Seattle-based investment advisory firm with fraudulently misusing client assets to make loans to himself to buy a luxury vacation home and refinance a rare vintage automobile.
An SEC investigation found that the owner of the firm used assets from the portfolio of a senior citizen client to fund $3.1 million in personal loans without telling her or obtaining her consent. The loans were not in the best interest of the client and significantly favored the owner, who provided no collateral, had no set pay-off dates, and paid most of the interest at the prime rate (which banks typically provide their most credit-worthy customers). He also improperly directed an investment fund managed by his firm to make more than $4.5 million in loans and investment purchases to facilitate personal real estate deals and fend off claims from disgruntled clients. He diverted more than $500,000 from the fund to pay settlements to disgruntled clients.
The owner and the firm, who eventually paid back the diverted funds and personal loans, agreed to settle the SEC’s charges and pay more than $340,000 in disgorgement and prejudgment interest to the individual client and the investment fund, representing ill-gotten gains that the owner retained even after he paid back the loans. He and his firm also agreed to pay a $250,000 penalty, and he will be barred from the securities industry for at least five years. The firm will wind down its operations with oversight from an independent monitor.
“Investment advisers have a fiduciary duty to act in the best interest of advisory clients and disclose all material conflicts of interests,” said Jina L. Choi, director of the SEC’s San Francisco Regional Office. “[This man] instead took advantage of his clients and misused more than $8 million of their assets for his own personal gain.”
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