The U.S. Securities and Exchange Commission charged New York-based investment advisor Train Babcock Advisors LLC (TBA), a New Jersey-based attorney and a New York-based accountant in connection with a fraudulent scheme led by TBA’s former principal, John Rogicki, who stole more than $9 million from his advisory client, a charitable foundation established by an elderly widow to donate her estate to health and education causes.

TBA, which is in the process of winding down its operations, has agreed to settle the SEC’s charges by paying more than $1.7 million in disgorgement, interest and penalties for these and other violations. TBA has also agreed to be censured and to withdraw its registration with the SEC as an investment advisor.

Separately, the SEC filed a complaint in federal court in Manhattan against one of the foundation’s trustees, attorney Robert Gaughran, and its accountant, Kevin Clune, alleging that they aided and abetted the fraud perpetrated by TBA and Rogicki.

According to the SEC’s filings, between 2004 and 2016, Rogicki took advantage of his roles as investment advisor and trustee to the foundation by liquidating securities positions in the foundation’s advisory account with TBA and misappropriating a total of more than $9 million from the foundation for his own personal benefit.

On Oct. 19, the SEC filed a civil injunctive action in federal district court against Rogicki. In a parallel criminal action, Rogicki pleaded guilty to criminal charges brought against him by the Manhattan District Attorney and on Dec. 14 Rogicki was sentenced to serve 30 to 90 months in prison and ordered to pay $6.7 million to the foundation, of which he forfeited $2.5 million, in connection with his criminal plea.

 The SEC’s complaint alleges that Gaughran and Clune aided and abetted TBA’s and Rogicki’s fraudulent scheme.

While serving as a trustee of the foundation, Gaughran allegedly accepted outsize fees and ignored glaring signs of Rogicki’s theft that were apparent from the foundation’s brokerage statements and other documents that he regularly reviewed. Gaughran also drafted the trust and estate papers that put Rogicki in charge of the charitable foundation and knew the size of the estate that should have flowed to the charitable foundation, but for Rogicki’s misappropriation of $9 million of its assets.

Meanwhile, according to the SEC’s complaint, Clune, an accountant who performed tax work for both the estate that created the charitable foundation and the charitable foundation itself, ignored multiple and repeated red flags revealing Rogicki’s and TBA’s fraudulent scheme.

In addition, both Gaughran and Clune were actively involved in concealing the theft by providing false information to an outside audit firm during a surprise examination of the charitable foundation that was conducted in 2014.

The SEC’s complaint charges Gaughran and Clune with aiding and abetting TBA’s and Rogicki’s violations of the Investment Advisers Act of 1940 and the Securities Exchange Act. The SEC’s complaint seeks a permanent injunction, disgorgement, prejudgment interest and penalties against Gaughran and Clune.

Former Transition Management Exec Barred and Fined $975,000 for Fraud

The former head of ConvergEx Group’s transition management business has agreed to be barred from the securities industry and has consented to a judgment ordering him to pay more than $975,000 to settle fraud charges the SEC filed in 2016.

The SEC’s complaint alleged that Khaled “Kal” Bassily participated in a fraudulent scheme to hide from charities, religious organizations and retirement funds that they paid substantially higher amounts than disclosed for the execution of trading orders.

Without admitting or denying the SEC’s allegations, Bassily consented to the entry of a final judgment that ordered him to pay a total of $988,000 in disgorgement, prejudgment interest and a civil penalty. Bassily also consented to the entry of an SEC order that barred him from the securities industry.

The settlement follows charges announced in December 2013 against three ConvergEx Group subsidiaries that agreed to pay more than $107 million and admit wrongdoing to settle the matter. Two former employees and a former executive of another ConvergEx Group subsidiary also settled charges with the SEC related to this scheme. In August 2014, the SEC filed charges against Anthony Blumberg, a former executive of a ConvergEx Group subsidiary. The SEC’s charges against Blumberg are currently pending in federal court in Newark, New Jersey.

Court Holds RIA, Principal in Contempt for Failing to Comply With Court Order Enforcing SEC Subpoena

The SEC announced that a judge issued an order finding Anvil Partners Inc., a Buffalo, New York, investment advisor registered with the SEC, and its majority owner, president and chief investment officer, Jeremy Beck, to be in civil contempt of court for failing to comply with the court’s prior order enforcing an SEC investigative subpoena directed to Anvil.

The SEC is investigating, among other things, whether Anvil materially overstated its assets under management in its public filings.

On June 6, 2017, the SEC issued an investigative subpoena to Anvil requiring that it produce certain documents. However, Anvil failed to produce any documents or otherwise respond to the subpoena.

The SEC filed this subpoena enforcement action on Aug. 21, and on Sept. 21, the court entered an order requiring Anvil to comply with the SEC subpoena.

Anvil failed to comply with the court’s order, and, after holding a hearing on December 19, 2017, the court held Anvil and Beck in civil contempt.

The contempt order requires Anvil and Beck to reimburse the SEC the costs of serving them with court papers in this proceeding, imposes a $250 daily fine against both Anvil and Beck until Anvil complies with the subpoena enforcement order, and orders Beck’s arrest and appearance at a further Jan. 10 hearing.

— Check out FINRA Releases FAQ on Elder Exploitation Rules on ThinkAdvisor.