The Securities and Exchange Commission warned investors Wednesday to perform a thorough background check on potential advisors’ credentials as it brought two enforcement actions against advisors for falsifying and exaggerating theirs.
The SEC’s Office of Investor Education and Advocacy issued an Investor Alert Wednesday warning investors not to “trust someone with your investment money just because he or she claims to have impressive credentials or experience, or manages to create a ‘buzz of success.’”
The alert not only cautions investors to watch out for unregistered advisors, but states that advisors may inflate their professional experience, credentials or lie about their education and awards that they’ve received.
The SEC brought two actions based on such misrepresentations Wednesday, one against Michael G. Thomas of Oil City, Pennsylvania, who falsely touted that he was named a “Top 25 Rising Business Star” by Fortune magazine as he solicited investors through blast emails and the Internet for a private fund named Michael G. Investments LLC. The regulator also says Todd M. Schoenberger of Lewes, Delaware, misrepresented that he had a college degree from the University of Maryland and touted his appearances on cable news programs while soliciting investors to purchase promissory notes issued by his unregistered investment advisory firm, LandColt Capital LP.
“Advisors looking to raise funds cannot lie about their backgrounds to lull investors into a false sense of security about their purported expertise or the profitability of a potential investment,” said Julie Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit, in a statement. “Each advisor in these cases used false claims about his background to create trustworthiness and lend credibility to their offering schemes.”
The alert notes that investors “sometimes unintentionally contribute to a fraudster’s false reputation of success and accomplishment by merely repeating to others the misrepresentations being made to them.”
The alert urges investors to visit the “Ask and Check” section of the SEC’s Investor.gov website to conduct background checks on financial professionals to ensure they are properly licensed or registered with the SEC, Financial Industry Regulatory Authority or a state regulatory authority.
In Thomas’ case, the SEC found that no “Rising Business Star” distinction actually exists at Fortune, and that he also “greatly exaggerated” his own past investment performance, misrepresented that certain industry professionals would co-manage and advise the private fund, and inflated the fund’s projected performance. Thomas agreed to pay a $25,000 penalty and consented to an order requiring him not to participate in the issuance, offer or sale of certain securities for five years. He also is barred from associating with any broker, dealer or investment advisor for at least five years.
As to Schoenberger, the SEC found that he “falsely told prospective investors that LandColt would repay the notes through fees earned from managing a private fund,” but that Schoenberger never actually launched the fund, never had the commitments of capital to the fund that he claimed, and never paid investors the returns he promised.
Schoenberger agreed to pay $65,000 in disgorgement of ill-gotten gains plus interest, and consented to an order barring him from associating with any broker, dealer or investment advisor and from serving as an officer or director of a public company.
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