More On Legal & Compliancefrom The Advisor's Professional Library
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
The Securities and Exchange Commission announced Monday that it has charged two Florida men for running a Ponzi scheme that robbed more than 100 investors of $22 million.
The scheme, which purported to be a private equity fund and was marketed under the names “Managed Capital Fund,” “Safe Harbor Private Equity Fund” and “Preservation of Principal Fund”, was run by James Davis Risher; Daniel Joseph Sebastian distributed offering materials and solicited investors, the SEC’s complaint charges.
Risher claimed to have a retail brokerage business with “substantial experience” in trading equities, and wealth management and asset management services, the SEC says. On the contrary, the commission alleges, Risher spent 11 of the last 21 years in state and federal prisons for “numerous crimes including securities and mail fraud.”
“Risher, who masqueraded as a highly successful equity trader, teamed up with Sebastian to tout sophisticated trading strategies they claimed would generate substantial profits for investors,” Eric Bustillo, director of the SEC’s Miami Regional Office, said in a statement. “Instead, Risher and Sebastian used investors’ life savings and retirement nest eggs to line their own pockets.”
Between January 2007 and July 2010, Risher and Sebastian solicited investors, including teachers, retirees and members of several Florida churches, by promising annual returns between 14% and 124%. Sebastian also solicited investors in other states and Canada. He provided investors with fake fund-offering materials, newsletters and a DVD with video testimonials about Sebastian and Safe Harbor.
At an investor event in March 2010, the complaint alleges, Sebastian told investors, “[Y]ou invest in this fund and all of a sudden you start making more money than you’ve ever made in your life with your investors. And then all of a sudden you start making enough money where you don’t have to go to work … [a]t Safe Harbor, you could retire today, like right now.”
Of the $22 million they raised, Risher and Sebastian invested just $2.5 million in brokerage accounts, the complaint says. Of that, Risher lost $890,000 through trading activity. Risher claimed management and performance fees of $4.8 million and used another $4.5 million on jewelry, gifts and real estate in North Carolina and Florida. Sebastian claimed fees of $3.3 million.
The SEC charged Risher and Sebastian with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. Risher was charged with violating Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8.
Sebastian was charged with aiding and abetting Risher’s violations of Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The SEC is seeking permanent injunctions, disgorgement and financial penalties against Risher and Sebastian.
Read the SEC’s complaint against Risher and Sebastian.