The agency's complaint alleges David L. Rothman, a minority owner of the registered broker-dealer Rothman Securities, defrauded a pair of clients described as "elderly and unsophisticated investors" from 2006 to 2011 with phony account statements that "materially overstated" the value of their holdings.
According to the SEC compliant, after the investors discovered the fraud, Rothman allegedly committed to repay the value he had reported on the fraudulent statements, but eventually money ran short.
"When Rothman could no longer afford to make those payments, he misappropriated funds from another elderly and unsophisticated investor and from two trust accounts for which he serves as trustee," the SEC alleges in its complaint. "Rothman also used a substantial portion of the misappropriated funds for his personal benefit."
A phone call to Rothman Securities was directed to Ted Rothman, David's father, who declined to comment on the SEC allegations. "I don't know anything about that," he said, declining to answer questions about his or David's current roles with the company. "I can't respond to any of that. See you later," he said before hanging up.
The SEC's complaint identifies David Rothman and his parents as joint owners of Rothman Securities, based in Southampton, Pa. Throughout the period described in the complaint, David Rothman was a registered representative, vice president and co-owner of the firm, according to the commission.
In a separate matter dating back to 2004, both father and son were censured by the CFP Board involving the purchase of Class S shares of mutual funds. The National Association of Securities Dealers issued fines and suspensions to both men for executing trades that were not in the best interests of their clients.
In December 2004, the CFP Board issued public letters of admonition to the Rothmans for failing to disclose the NASD probe, which ultimately resulted in letters of acceptance, waiver and consent for the two men, on their respective renewal forms and for failing to notify the board of the professional suspensions within the required 10 calendar days.
In its twin civil and criminal complaints against David Rothman, 48, the SEC describes fraudulent statements that either inflated the trading price or the number of shares that two of his clients held in their investment accounts.
"By issuing false account statements, Rothman at times exaggerated these customers' returns and at other times concealed the fact that their account values were in decline," the SEC alleges in its complaint. "As a result, Rothman was able to maintain his business relationship with these customers and he continued to earn compensation from the investment products he sold to them."
In the case of one client, a retired couple living in Delaware, the SEC alleged Rothman overstated the value of their accounts by between 16% and 262% over a more than four-year period.
When the customers discovered their actual assets were worth substantially less than what Rothman had been reporting, they reached an agreement -- including a confidentiality agreement -- under which the broker committed to a monthly repayment schedule until the customers' accounts reached the amount that had been reported, according to the SEC. Rothman also took out a life insurance policy, with the customers designated as beneficiaries, in the event that he died before the full balance was repaid, according to the complaint.
Rothman allegedly made the monthly payments of $5,000 from February 2010 through November 2011, but then stopped, at which point the customers filed a complaint with the Financial Industry Regulatory Authority, the SEC said.
The SEC's complaint describes another, similar case involving a retired couple who live in Pennsylvania and Florida whose assets were overstated by as much as 163%, and with whom Rothman also entered into a repayment agreement. Some of the funds repaid to those customers were allegedly pilfered from a third client, a 94-year-old retiree and a 30-year client of Rothman Securities, the SEC said.
According to the complaint, Rothman misappropriated some $463,000 from that customer's account, including at least $180,000 that he took for himself, more than $50,000 of which was withdrawn from ATMs in hotels and casinos in New Jersey and Aruba.
In the civil case, the SEC is seeking a permanent injunction against Rothman, as well as civil penalties, interest and the release of all ill-gotten funds.