After losing millions in 'disastrously unprofitable' strategy, ex-FA charged with fraud: SEC
It took just 10 months for an ex-advisor to deplete virtually all of a couple’s $2.2 million of retirement savings.
That’s according to the SEC, which charged former advisor Hai Khoa Dang with defrauding the couple who had been his clients for 20 years.
Dang engaged in a “risky and unauthorized options trading strategy” that caused the value of their accounts to plummet from more than $2.2 million in February 2018 to approximately $145,000 that December. By November 2019, the value of the accounts had dropped 99%, according to the regulator.
At the time, Dang, 48, wasn’t a registered advisor; he hadn’t renewed his licenses since 2006. Even so, he continued to work with clients via an arrangement with an ex-colleague, and then later, accessed their self-directed brokerage accounts, according to the SEC.
The SEC is seeking a permanent injunction against the broker, as well as disgorgement, prejudgment interest and a civil penalty, according to the regulator’s complaint, which was filed in a federal court in Connecticut.
Dang, who lives with his sister in Manchester, Connecticut, according to legal filings, could not be reached for comment. It is not known whether he is currently represented by an attorney.
Dang had worked with the couple ever since the husband heard Dang speak at a presentation at his former employer, an aerospace technology firm, according to the SEC.
In 2006, Dang did not renew his license with his firm, Investor Capital Corporation, a Cetera Financial Group-owned broker-dealer it closed in 2017. To continue working with the clients, the ex-rep allegedly made an arrangement with another broker at Investor Capital. For the next decade and over two career moves, the colleague was the official rep on the accounts and placed their trades, even though it was Dang who made the investment recommendations and spoke with the clients, according to the SEC.
Dang allegedly never informed his clients of the arrangement, nor that he had left the wealth management industry, according to the SEC.
An SEC spokesman declined to comment on whether the regulator would seek action against the former colleague, who was not named in the complaint. An Investor Capital Corporation spokesman declined to comment.
Dang ultimately recommended the couple transfer their $2.2 million in retirement savings into self-directed brokerage accounts, where he would make trades by using their usernames and passwords and receive a 1% advisory fee in cash, the SEC says.
Dang allegedly invested the entirety of their savings into a “disastrously unprofitable” risky options trading strategy. By November 2019, only $27,000 was left in the clients’ brokerage accounts — a 99% drop in value, according to the regulator. In addition to the loss in retirement savings, Dang allegedly never repaid them $100,000 they had loaned him in 2009, according to the SEC.
Dang allegedly lied about the cause and amounts of his clients’ losses, according to the SEC. At one point, he allegedly told clients that they had not suffered any losses because the stock options held value that was not reflected in monthly account statements.
Even though he wasn’t a registered advisor, Dang made recommendations to at least one other client after he left the Cetera broker-dealer, according to the Connecticut Department of Banking, which filed a cease and desist letter against Dang in 2016 over his relationship with that client.
The division found Dang borrowed $180,000 in personal loans from a client during the time he was registered with Cetera’s broker-dealer, among other claims. After he left the firm, Dang continued to work with the client via her TD Ameritrade account, although he wasn’t compensated for it, the state agency found.
That client filed a complaint against Dang with FINRA in 2012, according to the SEC. Those allegations are not available on his BrokerCheck record.
A FINRA spokeswoman did not respond to a request for comment on why the client’s complaint does not appear on BrokerCheck and whether the self-regulatory organization had pursued any action against Dang.
A Cetera spokesman declined to comment.