The former controller of a registered investment adviser owned by her father will spend six years in prison after pleading guilty to her role in their fraudulent $11.4million scam. Compliance issues of some so-called hybrid RIAs remain a problem, however, experts say.
Vania May Bell received a sentence of six years and eight months on October 11 in federal court in New York after pleading guilty to conspiracy to commit wire fraud. Hector May, former financial adviser with Advisor Group Securities Americais serving a 13-year sentence after admitting to bogus bond investment plan of about 20 years in 2018. Securities America paid a civil penalty from the SEC and regulations with no fewer than 16 victims totaling $15.6 million.
“For two decades, Bell and his father Hector May ruthlessly orchestrated a multi-million dollar Ponzi scheme,” U.S. Attorney Damian Williams said in a statement. Victims included “vulnerable aging couples, close friends, relatives and a construction company employment pension plan,” Williams said. “Bell now joins his father in prison to be held accountable for this devastating crime.”
Public defenders representing Bell, a 57-year-old resident of Montvale, New Jersey, did not respond to an email seeking comment on the case. Her lawyers had sought a lower sentence at the government’s request for at least eight years, in part arguing that a sometimes “violent and abusive” and often absent relationship with her father allowed her to “manipulate her daughter into she becomes his accomplice.”
Advisor Group representatives declined to comment on the matter. In the SEC case that Securities America settled in June 2021 for $1.75 millioninvestigators said the company failed to adequately review at least 55 alerts in its systems that could have shut down the scheme.
The closed New City, New York-based RIA at the center of the case, Executive Compensation Planners, shows the complex role of these hybrid companies in the industry. Hybrid RIAs are businesses owned by advisors or branch managers who are also affiliated with brokerage firms such as Securities America. RIAs are often used as recruitment and growth engines for wealth managers. The ability to conduct advisory business outside of RIAs directly owned by domestic firms allows greater flexibility and often higher payouts for advisor practices. However, this configuration can also give alleged bad actors more openings for harmful sales tactics or fraud.
Among other recent cases hold compliance officers accountable for fraud on their watch, the conviction of Bell, 57, stands out as “a very good courier case” that “wrongdoers will be prosecuted”, according to attorney Michael Edmiston, president of the Public Investors Advocate Bar Association. Bell had worked for the RIA for 25 years with tenures as controller and chief compliance officer, and investigators said she had played a vital role in the program.
“Most of these people are good. Bad actors see it as regulatory arbitrage,” Edmiston said in an interview on Hybrid RIAs. “It’s happening with shocking frequency. In many cases it’s not picked up and pushed that far.”
The Edmiston Organization, which is an advocacy group of lawyers who represent clients in cases against the industry, strongly opposite a rule proposal from FINRA in 2018 that it said would have increased the likelihood of scams via hybrid RIAs by removing certain monitoring requirements for companies like Securities America. FINRA then set aside the proposal.
“The members of the PIABA have seen, too often, agents establishing themselves alone or in small [RIA] businesses and using outside business activities in order to avoid member oversight, in order to engage in activities that harm investors,” the organization wrote at the time. Its letter included a list of four different schemes that allegedly cost hundreds of customers a total of $46.5 million.
FINRA officials declined to comment on questions posed by May’s case about brokerage oversight, noting a policy against discussing investigations. SEC officials pointed to the Case against Securities America last year, noting that the regulator named the firm’s corporate RIA, Securities America Advisors, as a defendant.
Like most large wealth managers who are known in the industry as dual registrants, Securities America has an RIA subject to fiduciary standards requiring it to put the interests of clients before its own and a brokerage that just have to act in their best interest.
Securities America’s RIA had outsourced some aspects of oversight to the brokerage, but it was responsible for applying its own policies and procedures appropriate to its business, according to the SEC. In addition to fiduciary duty, domestic wealth manager RIAs could be subject to enforcement actions involving their affiliated hybrid companies under guidelines such as compliance to reignthe guard to reign or their supervision of such advisers as part of their SEC registration.
With tens of thousands of AIRs registered with the SEC and at the state level in offices across the country, however, there “simply aren’t the resources for regulators” that would be needed to aggressive monitoring of all of them at once, according to Edmiston. Wealth managers have a conflict of interest stemming from how hybrid RIAs increase their profits, while clients are unlikely to grasp the technical details of the setup, he said.
“It’s the perfect scenario for a bad actor to exploit investors,” Edmiston said. “There are no indications of red flags for customers to think there is something wrong.”
In the case of May and Bell, at least, many clients have received payment for their losses from Securities America and the adviser and his daughter have substantial prison sentences. Bell’s sentence includes three years of supervised release, restitution of more than $8 million, and forfeiture of any additional $590,000.
Bell “was not a minor or marginally significant participant in this crime,” according to the Justice Department’s sentencing memo earlier this month. “Bell falsified account statements that tricked people into thinking they had millions, even when she knew (from her QuickBooks tracking spreadsheets) that their money had been stolen. Bell exercised her role chief compliance officer and controller to help cover up fraud from [Securities America].”