For one father-son duo, the apple doesn't fall far from the tree.
A federal court ordered a former investment advisor to pay more than $1 million in fines related to two fraud cases one for misleading clients in efforts to bring assets to his new RIA, and another for failing to disclose previous regulatory troubles involving his father, a former broker.
In September 2010, the SEC brought a complaint against Benjamin Lee Grant, alleging he had engaged in a scheme to deceive customers in order to move their assets to Sage Advisory Group, an RIA he opened in Boston. In August, a federal jury found Grant and the firm liable for the fraud charges.
In a second case involving his father Jack Grant, a previously barred broker, the SEC charges that the advisors failed to alert clients about the elder Grant's record. According to the SEC, Sage and Grant admitted liability for fraud in this case.
Final judgments in both cases were entered last week. In total, Grant and Sage are on the hook for more than $1 million, including $500,000 in disgorgement, $51,380 in prejudgment interest plus $500,000 in civil penalties.
According to Grant, the penalties "are part of a settlement that I agreed to after six years of litigation with the SEC. I've been strongly advised by my attorneys not to comment on the litigation or on the settlement."
Grant consented to permanent barring from the industry by the SEC.
BREAKAWAY FRAUD CASE
The younger Grant, who had previously worked as a broker with Wedbush Morgan Securities, told clients that changes in their accounts were being made at the suggestion of California-based investment advisor First Wilshire Securities Management, a firm he worked at before his time at Wedbush, according to a documents from the SEC.
After resigning from Wedbush and establishing Sage, Grant told clients that in order for First Wilshire to continue managing their assets they would have to leave Wedbush. He then said that should clients move their assets to the new RIA, they could save under a wrap fee program. To usher customers away from Wilshire and toward Sage, Grant told clients that they should fill out new advisory and custodial account documents rapidly, according to the SEC.
According to SEC filings, a majority of Sage's clients were referred by Grant's father, Jack Grant. The elder Grant had made these recommendations despite having already been barred from the industry. He settled the charges against him in 2013, neither confirming nor denying the SEC's allegations, according to his representation.
"What troubles me about the cases against Jack Grant, Benjamin Lee Grant and Sage Advisory is I believe the SEC's claims overstate certain facts and omit some critical considerations," says Mikalean Howe, an attorney at Boston-based Rubin and Rudman and a spokeswoman for the firm representing Jack Grant. "Most notably the majority, if not all of [their clients], saw their portfolios outperform the market."
A voicemail was left at a number belonging to his attorney. Grant's lawyers could not be reached for comment.
LESSON FOR BROKERS
Following the jury's August decision, Andrew Ceresney, the director of the SEC's enforcement division, says he saw the case as an object lesson for brokers looking to go the RIA route, and a reminder of the ethical standards involved in bringing their clients along with them.
"This case sends an important message to investment advisers that they must put the needs of their clients before their own," Ceresney says in a statement. "When brokers decide to convert their business to an investment advisory firm and want customers to follow them, they owe a duty of full and fair disclosure to those prospective advisory clients."
Additional reporting by Kenneth Corbin.
Note: This story was updated to include comments from Benjamin Lee Grant.
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