A Connecticut investment advisor is facing fraud and other charges for allegedly engaging in a scheme to steer $19 million of client assets into unsuitable, high-risk investments and concealing his commissions.
The SEC charged George L. Taylor and his firm, Temenos Advisory, with violating their fiduciary duty to put their clients' interests first, and to disclose what the commission describes as blatant conflicts of interest.
"Instead, defendants ignored their clients' interests and biased their investment advice to put money in their own pockets," the SEC alleges in its
Taylor is Temenos' founder and majority owner, and also serves as the firm's CEO and chief compliance officer, according to the firm's Form ADV.
“From 2014 through 2017, Temenos and Taylor defrauded their advisory clients and prospective clients by steering the clients into unsuitable investments and by hiding commissions and other financial incentives that Temenos and Taylor were pocketing, on top of the advisory fees that the clients were paying for supposedly unbiased financial advice,” the commission says.
Temenos clients would typically pay fees based on a percentage of their assets under management. But in promoting the risky investments, the SEC says Taylor collected commissions from four private placement companies. In that capacity, Taylor was acting illegally as an unregistered broker-dealer, the SEC charges.
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Brent McIntosh is Citi's chief legal officer and corporate secretary. Brent leads Citi's Global Legal Affairs & Compliance organization, which includes the Legal Department, Independent Compliance Risk Management, Citi Security and Investigative Services and Citi's Regulatory Strategy and Policy function. He is a member of Citi's Executive Management Team.
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Through his lawyer, Taylor declined to comment.
"As counsel, we believe the SEC action is unwarranted and the allegations are exaggerated," Taylor's lawyer, Steven Fuller of the firm Markun Zusman Freniere and Compton, writes in an email.
"Temenos has cooperated with the SEC and will continue to put its clients' interests ahead of its own," Fuller says. "Any errors it made were unintentional and the firm and Mr. Taylor deny all allegations that they acted with an intent to defraud any client."
Fuller did not immediately respond to questions about how he will respond to the complaint filed this week.
The SEC is seeking a jury trial, looking to obtain disgorgement of the commissions Taylor allegedly pocketed, as well as penalties, interest and permanent injunctions against Taylor and his firm.
Temenos, based in Litchfield, Connecticut, counted senior citizens and those nearing retirement as clients, according to the SEC's complaint. Investors moved money from their pension plans or retirement funds into the risky investments that Taylor was promoting, it says.
Prior to 2014, Taylor had primarily invested clients' funds in mutual funds, ETFs, variable annuities and stocks, the SEC says.
But around that year, the firm's financial situation soured. During the period of the alleged fraud, Temenos was unable to make payroll, falling behind on its bills, and running down or overdrawing its bank accounts. None of the firm's "severe financial distress" was reported on Temenos' Form ADV, according to the SEC.
Taylor also failed to conduct due diligence on the investments he recommended and concealed warning signs about the financial health of those companies, the SEC says.
"Taylor made statements to clients that misleadingly suggested that the private placement investments Temenos offered had been carefully vetted and selected from a large group of potential offerings based on their favorable risk/return potential, and were suitable for any wealthy investor," the SEC says in its complaint. "They weren't."
Moreover, the SEC charges that Taylor promoted the four private placements broadly among his client base, ignoring the fact that those investments, which were "inherently high risk and illiquid with a long-term and indefinite time horizon," would not be suitable for certain investors.
The SEC alleges that the fraudulent conduct amounts to a violation of the Investment Advisers Act, while acting as an unregistered broker-dealer runs afoul of the Securities Exchange Act.
