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.
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
The SEC took action Monday against 10 former brokers who worked for McGinn Smith, an Albany, N.Y.-based firm charged criminally for a $125 million investment scheme for which its two co-owners received jail sentences.
The SEC halted the scheme at McGinn Smith in 2010 and froze its assets as well as those of owners Timothy M. McGinn and David L. Smith, who were found guilty of criminal charges. The scheme affected some 750 investors who lost $80 million.
The regulatory group’s enforcement division says the 10 brokers recommended the unregistered investment products, made “material misrepresentations and omissions to their customers” and “ignored red flags that should have led them to conduct more due diligence into the securities they were recommending.”
“As securities professionals, these brokers had an important duty to determine whether the securities they recommended to customers were suitable, especially when red flags were apparent. These registered representatives performed inadequate due diligence and failed to fulfill their duties,” said Andrew M. Calamari, director of the SEC’s New York Regional Office, in a press release.
The SEC said the brokers involved were:
- Donald J. Anthonyt Jr. of Loudonville, N.Y.
- Frank H. Chiappone of Clifton Park, NY.
- Richard D. Feldmann of Delmar, N.Y.
- William P. Gamello of Rexford, N.Y.
- Andrew G. Guzzetti of Saratoga Springs, N.Y.
- William F. Lex of Phoenixville, Pa.
- Thomas E. Livingston of Slingerlands, N.Y.
- Brian T. Mayer of Princeton, N.J.
- Philip S. Rabinovich of Roslyn, N.Y.
- Ryan C. Rogers of East Northport, N.Y.
Guzzetti was the managing director of McGinn Smith’s private client group from 2004 to 2009. The SEC says he failed to take any steps “to investigate the offerings and instead encouraged the brokers to sell the notes.”
In addition, the brokers kept selling McGinn Smith notes “even after being told that customers placed in some of the firm’s offerings could only be redeemed if a replacement customer was found,” which was contrary to the offering documents.
The SEC also says that the brokers learned in early 2008 that four earlier offerings, which had raised almost $90 million, had defaulted. However, they “failed to conduct any inquiry into subsequent offerings and continued to recommend McGinn Smith notes.”
The civil case continues against the firm, as well as against McGinn and Smith, who were sentenced to 15 and 10 years imprisonment respectively in the criminal case.
Check out TD Bank to Pay SEC $15M for Aiding Ponzi Schemer on ThinkAdvisor.