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Regulation and Compliance > Federal Regulation > SEC

SEC Charges Malta-Based RIA in $75M Scheme

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What You Need to Know

  • The SEC alleges that two executives, through Standard Advisory, fraudulently caused their advisory clients to engage in undisclosed related-party transactions.
  • These transactions were not in the clients' best interest, the SEC says.
  • The undisclosed transactions benefited the two men and their companies, according to the SEC.

The Securities and Exchange Commission has charged two North Carolina-based executives and their Malta-based RIA, Standard Advisory Services Ltd., for defrauding clients out of more than $75 million through undisclosed insurance transactions that benefited themselves and their companies.

According to the SEC’s complaint, from July 2017 through 2018, Gregory E. Lindberg and Christopher Herwig, through Standard Advisory, breached their fiduciary duties to their advisory clients by fraudulently causing them to engage in undisclosed related-party transactions that were not in the best interest of their clients.

The SEC’s complaint further alleges that the defendants misappropriated more than $57 million in client funds and that Standard Advisory collected more than $21.4 million in advisory fees generated in connection with the schemes.

“In an attempt to conceal the fraud, Lindberg allegedly orchestrated the schemes through complex investment structures and a web of affiliate companies and allegedly used the proceeds to pay themselves or to divert the funds to Lindberg’s other businesses,” the SEC said.

By 2017, according to the SEC’s compliant, Lindberg had acquired 100% ownership of four North Carolina insurance companies and a reinsurance trust, “which gave him control over hundreds of millions of dollars in premiums from their policyholders.”

While the funds “were supposed to be used to pay the policyholders’ insurance claims, Lindberg treated the funds as his own assets and used the money for any purpose he decided was in his best interest,” the complaint states.

Lindberg directed his insurance companies to enter into investment advisory services agreements with SASL, a Malta-based investment advisor he owned, the SEC said.

In another scheme, Lindberg and Herwig funneled millions of dollars of cash to Lindberg-owned affiliates by loading the balance sheet of another SASL advisory client, Private Bankers Life & Annuity Co., ”with prohibited or sham investments,” the complaint states.

“Specifically, Lindberg and Herwig advised PBLA to purchase (a) millions of dollars of securities issued by Lindberg affiliates and (b) hundreds of millions of dollars in illiquid, sham ‘repurchase agreements’ issued by Lindberg affiliates,” the SEC said.

As an SEC-registered investment advisor, “SASL had a fiduciary duty to make full and fair disclosures of all material facts to its clients and to serve the best interests of its client at all times,” the SEC said. “As agents of SASL, Lindberg and Herwig owed the same fiduciary duty to SASL’s advisory clients.”

Osman Nawaz, chief of the Division of Enforcement’s Complex Financial Instruments Unit, said in a statement: “We allege a massive fraudulent scheme, involving unique financial structures and various complex investments, orchestrated by the defendants for their own benefit over their advisory clients’ benefit.”

A spokesperson for Lindberg said Thursday in a statement that his legal team supplied the SEC with millions of pages and documents explaining every transaction that the SEC had questions about.

“The SEC claimed that the transactions were not disclosed yet they were supplied with emails showing the transactions were disclosed to virtually everyone on the management team of the North Carolina insurers, including the Chairman of the Board of the management company,” Lindberg said via the spokesperson.

“Despite being clearly shown how the transactions resulted in more capital and surplus paid into the North Carolina insurers — expressly for the benefit of policyholders — the SEC claimed the transactions harmed policyholders,” Lindberg said. 

Lindberg said he and his team “did nothing wrong” and he intends “to prove it in court.”

The SEC’s complaint, which was filed in U.S. District Court for the Middle District of North Carolina, charges Lindberg, Herwig and Standard Advisory with violating the anti-fraud provisions of the Investment Advisers Act of 1940, and seeks disgorgement plus prejudgment interest, penalties and permanent injunctions.


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