Broker Lied to Transition Customers to New RIA Firm
A federal court ordered an investment adviser and its principals to pay over $1 Million in fines and disgorgement and admit wrongdoing in connection with misleading brokerage firm clients to transition to the adviser. According to the SEC, the primary defendant resigned from his brokerage firm and sought to transition his clients with misrepresentations including statements that the customers would save on commissions even though they paid an all-in wrap fee. The SEC also accused a relative of one of the principals from associating with the adviser and continuing to provide advisory services even though he was under an industry bar.
OUR TAKE: A brokerage firm’s customers do not become the rep’s customers when the rep leaves to go independent. And, when the rep lies to those customers to induce them to transition, the rep becomes vulnerable to legal attack by the firm and the regulators.