A financial advisor who was the principal of an RIA for 21 years racked up more than $11 million in client losses by selling a risky alternative product he didn't understand, investigators said.
Thomas M. Chadwick of New London, New Hampshire-based Chadwick & D'Amato typically recommended that his clients, the majority of them retirees and other older adults, invest 50% to 92% of their portfolios in a
Chadwick "displayed a fundamental misunderstanding" of the "complexity and risk" of the Credit Suisse X-Links Monthly Pay 2xLeveraged Mortgage REIT ETN, which traded under the ticker symbol "REML" until its closure in December 2021 amid steep losses in value during the pandemic, according to a press release from the state Securities Bureau. "He failed to act in his clients' best interests and breached his fiduciary duty of care and loyalty."
Chadwick didn't answer calls to his cell phone listed on
"The individual and the investment advisory firm have denied, and continue to deny, the claim and assert that they have acted properly, lawfully, and in full accord with their fiduciary or other duties, at all times," Chadwick said in a broker comment listed on the SEC site on that case.
In March 2021, Chadwick agreed to pay $425,000 in the larger of the two settlements with a client who made claims relating to the handling of their accounts and investments, the database shows. In his response, Chadwick used the same language as he did in response to the pending complaint, with an additional line stating that the "decision to enter into the settlement for a joint payment of $425,000 shall not act as a presumption, concession or admission of any liability, fault, negligence, breach, omission or wrongdoing."
"ETNs are unsecured debt obligations of financial institutions that trade on a securities exchange," the SEC said in
The products come up frequently in arbitration cases because they're "very seldom understood by the investor, the advisor or even the supervisor," and, "even at their best, they are only potentially suitable for a narrow range of investors," said regulatory expert
"State regulatory procedures are quite effective but somewhat constrained by limited resources. Much of their work is tireless and very effective in investor advocacy," Straney said in an email. "State regulators deserve a great deal of credit for their ongoing efforts to protect state residents."
The investment cops in
Investigators said that Fidelity Investments' brokerage and custodial arm informed them last April that Chadwick's computer had gained unauthorized access to 27 accounts. He was still offering investment services despite Fidelity severing ties, according to investigators.
That came after the clients sustained huge losses from REML, according to the New Hampshire order. The product's value slipped from trading in the mid-$20s per share in late February 2020 all the way down to $0.52 by March 18, 2020, before the issuer
Chadwick sold about 580,000 of his clients' REML shares at the low in March 2020, according to investigators. Within a week, he encouraged them to repurchase positions in the products "with the hope that REML would recover," according to the securities bureau's press release.
The New Hampshire regulators are seeking a permanent bar of Chadwick plus the payment of restitution to investors and a fine as part of the case alleging he committed investment advisor fraud. Chadwick has a month after the filing of the order to request a hearing. Otherwise, the order will become final.
