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SEC: two advisors breached fiduciary duties, defrauded clients

On Behalf of | Oct 19, 2022 | Securities Fraud |

Two North Carolina executives of a Malta-based investment advisory firm have been charged, along with the firm, with securities fraud by the Securities and Exchange Commission. The SEC is seeking more than $75 million in ill-gotten gains, plus interest, and a permanent injunction.

According to the SEC, the two executives and their firm, Standard Advisory Services Limited, steered client transactions toward related companies without letting those clients know. If true, this breached their fiduciary duty to act in the best interest of their clients and avoid self-dealing.

The SEC also says the men and the firm misappropriated client funds to the tune of $57 million. And, while Standard Advisory was directing clients into inappropriate, self-dealing investments, it collected over $21.4 million in advisory fees.

Although one of the men set up complex investment structures and a web of affiliate companies, according to the SEC, the money ultimately went to the two executives or one of their other businesses.

The SEC alleges that the scheme amounted to fraud, in addition to breach of fiduciary duty.

“Today’s filing demonstrates that the SEC will take action to protect investors from investment advisers who attempt to evade fundamental fiduciary responsibilities,” said the chief of the SEC’s Division of Enforcement’s Complex Financial Instruments unit in an Aug. 30 press release.

Not every inappropriate investment is part of a fraud scheme, but investors can still take action

In the case of Standard Advisory, investors were steered toward investments that may have seemed legitimate but which benefitted the advisors more than the clients. This is a breach of fiduciary duty, and that can lead to a private lawsuit in addition to a potential SEC action.

However, anytime an investment advisor invests your money in a way that goes against your stated goals or which is inappropriate for your risk tolerance, you can seek redress through arbitration through the Financial Industry Regulatory Authority (FINRA). A FINRA arbitration can help determine what went wrong, whether the advisor acted wrongfully, and how much of your investment you should get back.

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