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Investment Adviser Sentenced to Over 7 Years in Prison

A financial adviser was sentenced to more than 7 years in prison and ordered to pay over $3 Million in restitution for misappropriating client funds by forging client signatures and altering account statements.  The SEC alleged that the defendant made 56 unauthorized withdrawals from client account over a five-year period.  The SEC also charged that the defendant lied to her firm and provided fake documentation to hide her activities.  The SEC charged her with violating the Advisers Act and with securities fraud.  The prison sentence arose from parallel criminal proceedings brought by the U.S. Attorney for the District of Massachusetts for wire fraud, investment adviser fraud, and aggravated identity theft.

Although the SEC does not have criminal prosecution powers, it has the discretion to refer matters to the U.S. Attorney once it uncovers securities wrongdoing.  If the DoJ can make a federal criminal case because of fraud or theft, an investment adviser can end up a guest of the state for several years. 

State Securities Regulators Escalate Enforcement Activity

The North American Securities Administrators Association (NASAA), the organization of state securities regulators, reported that state securities regulators imposed $914 Million in restitution, fines and penalties in 2016, as compared to $766 Million in the prior year.  In its Enforcement Report, NASAA also reported significant increases in criminal penalties including incarceration and probation.  The number of investigations and administrative actions also increased especially against investment advisers, which, according to NASAA, may be due to “heightened state interest in individuals and firms who have transitioned from broker-dealer registration to investment adviser registration in recent years.”  NASAA also reported significant information sharing with federal regulators.

OUR TAKE:  Over the last several years, the state securities regulators have expanded examinations and enforcement along with the SEC and FINRA, making it much more difficult for any adviser or broker-dealer to avoid regulatory scrutiny.  It’s worth noting that many state securities regulators have criminal enforcement authority.

 

Adviser Indicted for Lying During SEC Deposition

An investment adviser was indicted in part for making a false declaration in a court proceeding by lying to the SEC during a sworn deposition.  The deposition occurred during an enforcement case that alleges that the adviser defrauded retirees by lying about account balances, falsifying documents, and creating false wires.  According to the SEC, the adviser lied in a deposition about providing false documents to investors.

OUR TAKE: Once a formal enforcement proceeding commences, any misstatements under oath can lead to criminal proceedings for perjury or lying to a regulator.  It’s always wise to ensure that the lawyer defending the enforcement action has sensitivity to the possible criminal prosecution implications.  An enforcement action may results in fines and industry bars, but criminal proceedings could result in jail time.

 

Fund Manager Pleads Guilty to Obstruction of Justice for Lying During ALJ Hearing

lying-under-oath

A private fund manager has pled guilty to obstruction of justice for misstatements made during an SEC administrative hearing.  The SEC charges that the respondent misled investors about the use of funds and profitability of fund investments.  During the ALJ hearing, the SEC alleges that the respondent lied under oath that he did not control a related company.  The SEC asserts that the respondent set the company up in his son’s name because of the SEC investigation.

OUR TAKE: SEC investigations and hearings should not be taken lightly.  Misstatements can lead to prison time.

https://www.sec.gov/litigation/litreleases/2016/lr23691.htm