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Regulation and Compliance > Federal Regulation > SEC

SEC Charges Investment Advisor and CEO With Misleading Investors

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The Securities and Exchange Commission charged a Connecticut-based investment advisory firm and its chief executive officer with putting $19 million of investor money in risky investments and secretly pocketing hefty commissions from those investments.

The SEC’s complaint alleges that Temenos Advisory Inc. and George Taylor steered advisory clients and other investors — including senior citizens and individuals approaching retirement — into four risky, illiquid private offerings.

While Temenos and Taylor charged advisory fees for unbiased financial advice, they allegedly concealed from their clients the high commissions they were pocketing from these risky and unsuitable investment recommendations, including cash and ownership stakes in the private companies they recommended. According to the SEC, Temenos and Taylor fraudulently misled clients about the risks and prospects of the investments.

The SEC also alleges that Temenos and Taylor grossly overbilled some of their advisory clients.

“Investment advisors must put clients’ interests ahead of their own,” Paul Levenson, director of the SEC’s Boston Regional Office, said in a statement. “Temenos violated that duty by placing clients in risky private placements while downplaying the risk of those investments and concealing the financial conflicts that motivated the recommendations.”

According to the SEC, Temenos and Taylor failed to conduct even the basic due diligence necessary to determine whether the private placement investments were suitable for its clients.

“Although their due diligence was inadequate, their financial incentives to recommend these private securities offerings were not,” the SEC complaint states.

According to the SEC, Temenos and Taylor agreed to commission-based solicitation agreements with at least four private placement companies.

For one of those companies — a company that marketed an emergency response communications product — Temenos solicited approximately $11.2 million of investments in Company A from their advisory clients and other individuals. Under agreements with that company, Temenos received between 2.5% and 5% of each investment it brought to that company.

Another company — this one purported to be building a fiber optic connection between locations along the East Coast — had an agreement with Temenos where the firm would receive a fee equal to 5% in cash and 5% in equity (that is, an ownership stake) of each investment brought to this company. This company also compensated Temenos directly for its role in the solicitations. For this company, Temenos solicited approximately $7 million of client investments.

Temenos and Taylor also solicited investments for another company that marketed itself during the relevant time period as a crowdfunding investment portal. Temenos and Taylor solicited $805,000 of client investment in this company. And shortly after, they began to receive undisclosed payments from this company. Under a later agreement with this company, Temenos received money equal to 7% of each investment it brought.

Temenos and Taylor also solicited $225,000 of client investments in another company that purported to have developed a new water purification technology. According to the SEC, Taylor expected that this company would pay Temenos a 5% finder’s fee for investments in this company from Temenos’ clients.

The SEC’s complaint charges the defendants with violating the anti-fraud and registration provisions of the federal securities laws. The SEC is seeking disgorgement of ill-gotten gains plus interest, penalties, and permanent injunctions.


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