The Securities and Exchange Commission on Friday charged an Indianapolis-based investment advisory firm and its owner with selling approximately $13 million of high-risk securities to more than 120 clients — many of whom were unaccredited investors that included teachers — without disclosing that the firm and its owner stood to receive commissions of up to 18% from the sales.
According to the SEC complaint, from approximately December 2012 through October 2016, Steele Financial Inc. and Tamara Steele — a former teacher — sold approximately $15 million in Behavioral Recognition Systems Inc. and BRS-related securities to approximately 165 individuals, including $13 million to 127 of their advisory clients.
BRS, a private company, had previously been charged with fraud by the SEC.
“In violation of the defendants’ fiduciary duties of loyalty and good faith, they failed to disclose to their clients that BRS had agreed to pay the defendants commissions ranging from 8% to 18% of the funds raised for BRS,” the complaint states.
In addition, Steele and Steele Financial also acted as brokers for BRS securities without registering with the commission.
Before becoming an investment advisor and forming Steele Financial, Steele taught middle school math at a public school in Indiana, according to the complaint.
She left teaching in 1999 to become an investment advisor and “drew upon her teaching colleagues to acquire advisory clients.”
Approximately 33%-50% of Steele’s clients are current or former teachers or other workers in public education.
As the complaint states: “Steele described most of her approximately 450 clients as: ‘two-pensions, two Social Security families, either 10 years before retirement, or during retirement, or 10 years after retirement that have money that they use sparingly.’”
“Generally, Steele’s clients were not sophisticated investors and did not often invest directly in individual stocks,” the complaint states.
The SEC’s complaint, filed in federal district court in Indiana, charges the defendants with violating the antifraud and broker-dealer registration provisions of the federal securities laws.
The SEC is seeking disgorgement of ill-gotten gains with interest, penalties and permanent injunctions.
— Check out Priest Bore False Witness to Reap Profits in His Hedge Fund, SEC Says on ThinkAdvisor.