Over three months in 2021, one of a pair of identical twins who are both financial advisors asked a client to approve $156,000 in wire transfers out of their line of credit, the SEC said.
The advisor, Adam S. Kaplan, told the customer they would earn interest on loans with the capital. Instead, the money paid for $68,000 in bills to a designer handbag store, $58,000 to a high-end watchmaker and $30,000 to "a matchmaking service," according to
Besides having the same name with no apparent relation to the
During the vast majority of the fraud between May 2018 and October 2022, Chicago-based registered investment advisory firm IHT Wealth Management employed Adam and Daniel Kaplan, according to the SEC. The firm hired them two months after Merrill Lynch fired them with a citation of "conduct involving
"I hope Adam and Daniel Kaplan are innocent. I hope they didn't do it," said veteran securities attorney, former securities regulator and "
Requests for comment
The brothers' lawyer, Vincent Ancona of Ancona Associates, said the two reject the SEC's allegations but declined to go into further detail about the case in its early stages.
"We're going to be mounting a vigorous defense to show that the allegations by the SEC are overbroad and far-reaching," Ancona said. "We firmly believe that, after presenting numerous documentation, the SEC's case will be found to be without merit."
IHT Wealth, which has more than 140 advisors and $4.5 billion in assets under management as one of the larger hybrid RIAs using LPL Financial as its brokerage, didn't respond to requests for comment.
LPL, which never employed the brothers directly but clears trades and maintains custody of assets for hybrid RIAs like IHT Wealth, didn't respond to specific questions about the case beyond noting that the Kaplans aren't affiliated with the firm and that the firm's records show they were sharing office space with IHT Wealth.
The brothers had encouraged some confusion about their status at IHT Wealth among their clients, according to investigators, who identified the firm only as "Firm A" in the complaint. The timing of their employment with the firm outlined in the case, as well as the brothers' registrations in SEC records with IHT Wealth, make its identity obvious, though. The brothers told some clients they were the "New York directors" of the firm, while claiming to others that they were operating their own firm, according to the SEC.
As part of IHT Wealth's termination of the brothers in July 2021, IHT wrote in a comment on each of their BrokerCheck files that a client had "placed a formal complaint with the SEC that his advisor fees were in the 2.5-3% range with a signed agreement stating fees should be 1%."
Orlando, Florida-based International Assets Advisory, an independent wealth management firm whose RIA arm, Global Assets Advisory, employed the brothers for less than three months after IHT fired them, said the company is cooperating with the investigation.
In their time at Global Assets, the advisors "did no business with GAA, nor did they have any clients with the firm," according to spokeswoman Lisa Aldape. The firm fired them in November 2021 "soon after becoming aware" of the SEC's investigation, Aldape said.
The firm's "routine due diligence of the pair before they briefly joined GAA did not uncover any immediate issues of concern," she added. "GAA is cooperating fully with the ongoing SEC investigation into the Kaplans allegedly misappropriating investment advisory client funds for a more than four-year period at multiple investment advisory firms."
Merrill Lynch had prevailed
The arbitration award did state, however, that the Kaplans collected a settlement of an undisclosed amount in July 2021 from Merrill before dropping their claims of money damages. A spokesman declined to comment on the size of the settlement.
Fraud allegations
Experts have warned for years about
The Kaplans' case reflects the ongoing need for "a more effective compliance regime in-house" at RIAs and a "more effective regulatory regime" over the industry in general, Singer said.
"The problem is very simple," he said. "The way a regulatory case on Wall Street works, it's usually in response to a customer complaint. So if customers are not monitoring their accounts, and you slip in a $100 or $200 charge, and it looks like a reasonable fee for an advisor, nobody's going to know."
The Kaplans told their clients they would pay advisory fees of 1% or less, and in some instances 0%, according to the SEC. They jacked those rates up to between 1.25% and 2.95%, though, by getting clients to sign advisory agreements with blank fee levels that they would either fill in later or through forms that had the costs but later got doctored to be higher through amendments, investigators said. With that method, they collected $540,000 in extra advisory fees from 54 different clients who were "fraudulently overbilled" by IHT Wealth, the complaint stated.
As for the other $4.5 million worth of fraud, investigators said that the Kaplans gained permission from many of their clients to access their brokerage accounts, personal bank holdings and their credit cards. Then, using their own accounts at payment processing firms like Intuit, Square, Venmo, Zelle and PayPal, they began grabbing money from the clients while telling them the money paid for advisory fees.
They took more money by convincing the clients to open lines of credit that would supposedly enable the clients to earn interest on loans, investigators said. The brothers could transfer wires from those accounts as well.
Their other means of fraud included altering checks, phony consulting agreements and classic "Ponzi-like" payments to other victims who asked questions about missing money, according to the SEC.
"Many of [the Kaplans'] clients were their family, friends, and neighbors," the commission said in the complaint. "Because of their relationships, and because some of the clients were unsophisticated in financial matters, they placed significant trust in [the] defendants. Many clients followed [the] defendants as they moved from firm to firm."
