Indianapolis-based Steele Financial Inc. and the advisory firm's owner, Tamara Steele, have both been charged by the Securities and Exchange Commission (SEC) with failure to disclose sales commissions of up to 18% charged on approximately $13 million of high-risk securities sales.
Steele allegedly sold stock in a company called Behavioral Recognition Services (BRS) to roughly 120 clients, many of whom were her former colleagues in the field of education, teachers, or public school employees.
Steele, herself a former Indiana teacher, received a total of $2.5 million in cash and warrants from BRS as a commission without disclosing such arrangements to her relatively inexperienced clients.
The sales allegedly happened behind a curtain of false invoices and other steps meant to conceal involvement in selling BRS securities, a company that has been previously charged by the SEC with fraud.
Steele had reportedly invested heavily in BRS personally, and she had remained one of the primary stockholders in the company, which resulted in serious conflicts of interest that were not properly disclosed to her retail clients.
Filing with the federal district court in Indiana, the SEC has charged Steele and her firm with violating the anti-fraud and broker-dealer-registration provisions of the federal securities laws.
In its complaint, the SEC is seeking disgorgement of ill-gotten gains with interest, penalties, and permanent injunctions.
Disclosures of conflicts of interest, compensation arrangements and investment risks must be made prior to or contemporaneously with recommendations by advisers. Jacko Law Group's team of professionals can help you evaluate and author these investor disclosures. Failure to provide this material information can result in violations of the anti-fraud provisions, which must always be considered. For more information, please contact us at email@example.com or at (619) 298-2880.
Conducting Suitability Reviews: A Necessary Obligation of Fiduciary Duty
When we examine the takeaways of this case applicable to registered investment advisers (RIAs), it's clear that failing to properly disclose sales commissions or other conflicts of interest amounts to fraud and will be subject to enforcement.
The RIA's fiduciary duty requires full disclosure of any such conflicts to be made to retail investors.
The other more relevant takeaway is the need for RIAs to conduct regular suitability reviews to be sure that the types of securities being purchased are appropriate for the clients involved.
Failure to follow through on either of these obligations amounts to a violation of the RIA's fiduciary duty and could be subject to scrutiny or enforcement action under the Advisers Act.
Reviewing Policies and Procedures: Jacko Law Can Help
One of the best ways to avoid complications regarding the fulfillment of fiduciary duty is to be sure that your firm's policies and procedures for collecting data and constructing contracts for suitability reviews are effective and up to date.
Jacko Law Group, PC, has years of experience that can benefit any firm seeking to improve its methods for determining appropriate investments or to be sure that the requirements of full disclosure are being met. Contact us here for assistance in this area, or with any other legal questions that arise.
- Managing Partner and CEO
Michelle L. Jacko, Esq. is the Managing Partner and CEO of Jacko Law Group, PC, which offers corporate and securities legal services to broker-dealers, investment advisers, investment companies, hedge/private funds and ...
Add a comment
- SEC Charges Morgan Stanley Smith Barney with Providing Misleading Information to Retail Clients
- FINRA’s Senior Help Line: Celebrating 5 Years of Providing Protection
- How To Start: Are You Evaluating Your Firm’s Whistleblower Policies?
- Three Firms’ Failure to Disclose Conflicts of Interest Lead to Almost $1 Million in Disgorgement, Interest
- OCIE Risk Alert—Examinations Focused on Initial Compliance With Regulation Best Interest
- Lone Star Value Management Firm and Founder Pay to Settle SEC Disclosure Charges
- SEC Grants Regulatory Relief for Firms Affected by COVID-19
- SEC Updates its Public Alert Website, Adding Entities and Enhancing Capabilities
- SEC Examination Focus: Four Considerations for Vendor Relationships Within Your Business Continuity Plans (BCP)
- Old, Familiar Fraud Found in New, Innovative Investments
- Securities and Exchange Commission (SEC)
- Investment Advisers
- Policies and Procedures
- Dodd-Frank Act
- Due Diligence
- Advisers Act
- Securities Law
- Office of Compliance Inspections and Examinations (OCIE)
- Ponzi Scheme
- Aging Clients
- Form U5
- California Consumer Privacy Act (CCPA)
- Virtual Currency
- Private Equity
- Private Funds
- Regulation Best Interest
- Hedge Funds
- Regulatory Examinations
- Transition Services
- Personally Identifiable Information (PII)
- Government Shutdown
- Risk Alert
- Social Media Marketing
- Broker Protocol
- Exchange-Traded Funds (ETFs)
- Investment Company Act
- Rule 6c
- Wells Fargo