SEC Charges Solicitor with Failing to Conduct Proper Due Diligence
The SEC filed a complaint against a fund solicitor who the SEC alleges failed to conduct proper due diligence on the fund, which the SEC claims was a fraud. The defendant, who is deaf, solicited other deaf investors to invest in what he thought was a Bahamas-based fund investing in viaticals. According to the SEC, the fund never did any investing and, perhaps, did not exist. The SEC charges that the Defendant never conducted any due diligence including attempting to verify investments, licensing, or registration. The SEC charges that the solicitor’s conduct amounted to securities fraud.
OUR TAKE: Since Madoff, the SEC (and FINRA, and the courts, etc.) has wrestled with a solicitor’s due diligence obligations. A solicitor must perform some level of due diligence but, assuming some reasonable investigation, will not be held accountable for every underlying fraud. Nevertheless, solicitors should be very wary about selling products about which they (should) have concerns.