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July 20, 2018 at 09:12 AM
The Securities and Exchange Commission charged Cape Cod-area investment advisor Kimberly Pine Kitts with defrauding multiple clients by stealing more than $3 million from their investment and retirement accounts.
According to the SEC’s complaint, Kitts — who was employed as an investment advisor representative at a dually registered broker-dealer and RIA — engaged in a six-year scheme to steal money from client accounts. She was fired from the firm, Royal Alliance Associates, and barred from the industry in late 2017, according to the Financial Industry Regulatory Authority.
(Check out 12 Worst Financial Advisors in America: 2016.)
The SEC alleges that Kitts engaged in at least three separate schemes to misappropriate the assets of her clients in order to pay her personal expenses. These schemes involved forging client signatures on withdrawal requests from variable annuities, forging client signatures to wire funds from client brokerage accounts, and misleading clients into withdrawing funds from a retirement account to make fake tax payments.
Kitts continued this practice until 2017 when a client questioned Kitts about the dwindling balance in her account.
Through 82 unauthorized withdrawals, Kitts stole more than $3 million from seven clients, and then tried to conceal her fraud through falsified account statements and other documentation. Kitts used the money she stole for personal expenses, including paying for vacations and several luxury vehicles, according to the SEC.
“In each instance, [Kitts] exploited her fiduciary relationship with an advisory client, made intentional misstatements, and engaged in deceptive conduct in order to obscure her wrongdoing,” the complaint states.
The SEC’s complaint seeks permanent injunctions, civil penalties and disgorgement plus prejudgment interest against Kitts.
Former State Street Exec Convicted of Defrauding Customers
A jury in federal court in Boston, Massachusetts convicted Ross McLellan, a former State Street Corp. executive, of engaging in a scheme to defraud customers of State Street’s Transition Management line of business.
McLellan was found guilty of applying secret commissions to billions of dollars of securities trades executed on behalf of these customers.
The criminal conviction is based on substantially the same conduct alleged in a parallel enforcement action brought by the SEC.
The SEC’s complaint against McLellan, which was filed on May 13, 2016, in federal court in Boston, alleges that between February 2010 and September 2011 McLellan led a scheme to add secret commissions to securities trades performed for at least six clients of State Street’s “transition management” business. That business helps institutional clients move their investments between asset managers or to otherwise restructure large investment portfolios.
The complaint further alleges that these commissions were charged in addition to fees the clients had expressly agreed to pay the bank, and that McLellan took steps to conceal the commissions from the clients and others within State Street.
The SEC’s litigation continues.
Massachusetts Sanctions BD For Selling to Seniors on Bank Premises
Secretary of State William Galvin, Massachusetts’ top securities regulator, announced that his office has entered into a settlement agreement with Infinex Investments Inc. for failing to adequately supervise agents who were selling primarily to senior investors at local banks.
Infinex is majority owned by a group of nearly 40 banks who offer securities on bank premises and has selling agreements with approximately 30 banks in Massachusetts.
Galvin’s Securities Division began an investigation into sales practices by Infinex after receiving complaints from Massachusetts senior citizens, who believed they had been sold investments they did not ask for or did not understand.
Galvin’s investigation uncovered one supervisor who had oversight of approximately 180 Infinex representatives, yet testified that he spent “maybe 10%” of his week in a compliance function.
The order identifies four investors who filed complaints with Galvin’s office regarding the sales of high commission securities products, including real estate investment trusts and variable annuities. It also spotlights failures to disclose that the investors were dealing with a broker dealer, failures to disclose that products were not insured by the Federal Deposit Insurance Corp. and the sale of unsuitable investments to investors.
The order requires Infinex to pay a fine of $125,000 and to make full restitution to the investors.
The order also requires Infinex to cease and desist from further violations of Massachusetts securities laws, imposes a censure, and requires Infinex to retain an independent compliance consultant to review its supervisory structure.
FINRA Bars Securities Rep for Making Unsuitable Mutual Fund Transactions
FINRA barred a securities representative for making unsuitable recommendations for mutual fund switches, forging customers’ signatures on mutual fund switch forms and exercising discretion without customers’ prior written authorization.
According to FINRA’s July 2018 disciplinary actions, Brian Joseph Panfil, who was registered with FINRA firms Caldwell International Securities and then Ridgeway & Conger, effected 24 mutual fund switch transactions in four customer accounts with no reasonable basis to believe the transactions were suitable.
