A financial adviser barred from the industry over allegations of selective screening and the wealth manager who once employed him has agreed to pay $1.3 million to settle SEC cases against them.
Below separate Regulation of August 10 Agreements, SEC Orders Ex-Advisor Richard K. Robertson to Pay $920,000 in Restitution and a Fine; and IFP Advisors, the registered investment advisory subsidiary of Independent financial partners based in Tampa, Florida, to pay a fine of $400,000. Investigators have accused the midsize business of missing the red flags of Robertson’s scheme – a too common type in which an advisor uses “omnibus” or “master” accounts to make many transactions at once and allocate the most profitable ones to personal portfolios.
The cases came after a US Senate committee on banking, housing and urban affairs audience with FINRA and a prominent state regulator explored how to reduce instances of fraud. Cherry picking patterns remain alarmingly simple with leading accounts. In terms of average first-day returns, Robertson’s personal and family accounts outperformed those of his clients by 193 basis points for stocks and 686 basis points for options trading, resulting in “mal gains.” acquired” in his personal holdings of at least $592,000 over almost a year. decade, according to the SEC.
“The disparity between first-day returns on trades attributed to Robertson and his family accounts compared to trades attributed to other client accounts is statistically significant,” according to the two settlement agreements. “The likelihood of such an uneven distribution of day one gains and losses occurring by chance is almost nil.”
Robertson and IFP Advisors did not confirm or deny the allegations as part of their settlements, and the latter was credited in his agreement for his cooperation in the investigation. Efforts to reach Robertson were unsuccessful.
In a rarity for wealth managers who often hate discussing compliance openly, Bill Hamm, CEO of Independent Financial, spoke with Financial planning on the case. The company fired its chief compliance officer, hired a third-party consultant to verify that it met required undertakings in the SEC case and revamped its procedures, Hamm said.
“We’ve changed everything to make sure this doesn’t happen again,” he said. “We found there were still areas we needed to strengthen, and we did.”
Hamm believes the SEC investigation stems from a swipe of third-party custodians for possible screening schemes, he said. Robertson had been one of around 550 advisers at IFP Advisors until he left the firm in 2018, when Hamm’s company announced it would be leaving LPL Financial as a broker for start your own broker. Robertson then worked at Triad Advisors from 2019 to 2021, according to FINRA BrokerCheck.
Robertson, 56, operated a firm based in Del Mar, Calif., where investigators say he placed trades earlier in the day and gave himself and his family the most profitable trades between January 2011 and October 2020. The SEC ordered him to pay a refund of $592,000. , prejudgment interest of $28,000 and a civil penalty of $300,000.
“Because the omnibus account allocations occurred later in the day, Robertson was able to observe the intraday price movements of the purchased securities before determining the accounts to which he would allocate the stocks or options,” according to the settlement document.
The Senate hearing probed how best to prevent this and other types of fraud cases in the future, with testimony from FINRA Senior Vice President Gerri Walsh and Melanie Senter Lubin, Commissioner for Maryland Securities and President of the North American Securities Administrators Association. A recent study by FINRA and AARP suggests that stigma towards victims of scams and distrust of the justice system often play a role in late or non-existent reporting of schemes.
In addition, the state regulators advocacy group is calling on Congress to pass a series of laws, including: State empowerment the Protecting Older Persons From Bad Actors Act, which would provide annual SEC grants totaling $10 million to states to bolster fraud protection; the Financial Exploitation the prevention law of 2021, which would require investment firms to identify a trusted contact in the event of possible financial scams targeting a client; and the Stricter enforcement the Civil Penalties Act of 2021, which would raise the top tier of fines per violation of the law to $1 million for individuals and $10 million for businesses.
The House passed two of the bills, but neither it nor the Senate voted on the third. Due in part to cases of fraud and cryptocurrency scams, as well as the continued impact of the 2008 financial crisis, distrust of capital markets and institutions is growing, Senter Lubin said. in his testimony at the hearing. This lack of faith is increasing, especially among Americans who are black, Latino, Asian American or members of other minority groups, Senter Lubin pointed out.
“In my view, we may be at a turning point in the history of our capital markets,” she said. “Building lasting trust starts with improving how we prevent and detect investor harm and how we ensure law enforcement officials have the tools to do the job.”
For his part, Hamm said the responsibility for overseeing Robertson rests with Independent Financial during the time he was employed by the firm. The SEC accuses the firm of failing to perform a single branch audit of Robertson’s practice for eight years while adopting a “limited oversight” approach that failed to “effectively examine its operations as the demands the [firm’s] compliance manuals.”
After hundreds of recruitment losses Following its exit from LPL, Independent Financial is growing again these days. The company’s annual revenue jumped 31% in 2021 to $83.5 million, according to the data he submitted at Financial planningfrom the IBD Elite survey. It currently spans about 260 advisers with $12.5 billion in client assets, according to Hamm. Wealth managers of all sizes need to invest in the right staff and compliance providers, he said.
“Make sure you have the systems in place to detect it, because it’s out there,” Hamm said. “This guy fell through the cracks in this case.”