The Securities and Exchange Commission has charged a father and son advisor team of fraud after they allegedly concealed from clients that the father wasn’t associated with an RIA and used the services of Charles Schwab without authorization.
In a complaint filed Jan. 15 in the U.S. District Court for the Southern District of California, the SEC claimed Michael and David Sztrom of Rancho Santa Fe, California, and their San Diego company Sztrom Wealth Management (SWM), defrauded clients by creating the false impression that the father, Michael, was associated with La Quinta, California-based RIA Advanced Practice Advisors (APA).
Schwab and APA CEO and founder Paul C. Spitzer declined to comment on Friday. The Sztroms did not immediately respond to requests for comment.
Michael and his “inexperienced” son, David, who “was in his early 20s at the time and had just passed his securities licensing exam,” contacted APA and Spitzer, seeking to associate with APA, the SEC’s complaint states.
“Because Michael was under investigation and banned from the clearing broker-dealers, Spitzer did not let Michael associate with APA but agreed” that David could serve as an investment advisor representative, the complaint alleges.
The SEC’s complaint alleges that, from November 2015 through March 2018, the Sztroms provided investment advice to clients through SWM and concealed from clients that Michael was not associated with APA or any other RIA and was not subject to compliance oversight by APA or any other firm.
As alleged in the complaint, David, without any disclosure to clients, also allowed his father to use APA’s clearing broker-dealer, Schwab, for client transactions. Michael also allegedly impersonated David on phone calls with Schwab on at least 38 separate occasions, sometimes when David was present, leading that firm to terminate its agreement with APA.
“When Schwab discovered Michael’s deception, it immediately terminated David’s access to its platform and gave all of the APA clients 90 days to either find an investment adviser other than APA or move their brokerage accounts to another brokerage firm,” the complaint states.
“The Sztroms’ and SWM’s deception and multiple failures to disclose breached their fiduciary duties to clients,” the SEC said Tuesday in announcing the complaint.