A former broker barred from the industry 16 years ago is charged with running his second multimillion-dollar investment scheme — a stark sign of how hard it is for regulators to put bad actors out of business.
Peter Krieger stole $5.2 million out of roughly $15 million raised from 23 investors, some of them "elderly," that was supposed to go toward an oil refinery and storage facility in the Bahamas, the Securities and Exchange Commission
The theft wasn't Krieger's first scam. In 2005, the
That didn't keep him out of the investing game.
When banned from the securities industry, bad actors can simply say, "Okay, fine, I'll do it as an unregistered crook," said fraud expert Douglas Schulz of Westcliffe, Colorado-based Invest Securities Consulting.
"They did kick him out," Schulz said in an interview. But to no avail. "They're not even doing a very good job of monitoring — much less catching — the ones that are in their system. Now that the guy's been thrown out of the system, I don't know what more I'd have them do."
A lawyer representing Krieger didn't respond to a phone call and email seeking comment.
Asked what metrics the SEC could disclose on its progress in stopping bad actors from engaging in repeat misconduct, a commission spokesman declined to comment beyond the press release and court filings in Miami federal court in Krieger's new case. Krieger's latest alleged theft took place over three and a half years until mid-2020, court papers show.
The SEC can point to some positive outcomes — its enforcement division secured a record $6.4 billion in penalties and restitution
Part of the problem stems from a subtlety often left out in discussions of the industry's most important distinction: that between registered investment advisors, who must place their clients' interests ahead of their own as fiduciaries, and brokers, who only need to make recommendations in their "best interest."
Advisors, and an increasing number of clients, know that the former standard upheld by RIAs usually —
For instance, take a look at the disparity between RIAs and brokerages in annual audit examinations. In its last fiscal year, the SEC examined only about 15% of the more than 15,000 RIAs across the country,
That difference in audits displays another angle of the ongoing momentum toward
The upshot is that unregistered actors like Krieger can often operate without any oversight. In each of their latest annual enforcement reports, the SEC and
Regulators often acknowledge the difficulty of catching and preventing fraud. They have limited staffing and investigatory resources to police an industry of more than 300,000 financial advisors and tens of thousands of brokerages and SEC- and state-supervised RIAs. Victims might not put a fraudster on the authorities' radar
Unfortunately, the best available research and anecdotal evidence suggest that multiple offenses are commonplace.
Financial advisors who have committed misconduct are five times more likely than their average peers to engage in further offenses, according
The industry can point to
Like those twin brothers, Krieger built up a trusting base of investors. Most of the customers "are friends with [Krieger] and each other, live at least part-time in the same community and were solicited by word-of-mouth," his charging document said.
As the manager of a Florida-based limited liability company called Oban Energy, Krieger won over the firm's board and
"In reality, from January 2017 through August 2020, [Krieger] misappropriated approximately $5.2 million of investor funds to pay for personal expenses, such as luxury cars, jewelry, and vacations," the SEC said.
Krieger agreed to a "partial settlement" with the regulator, which is awaiting court approval, to ban him from being an officer or director of any public company and order civil penalties, disgorgement and interest.
Board directors at Oban Energy removed him from the company upon learning of his thefts in late 2020, according to investigators. The shareholders later formed a new firm,
Its website advertises the same "
The president of Dallas-based Lucayan, Rick Duszynski, said in an email that the firm has no association with Oban's former officers. He referred any questions about the project in the Bahamas to the firm's website.
