Misleading Statements to Customers to Transfer Their Assets Lead to Prosecution of Boston-based Investment Adviser

A  Boston, Massachusetts Federal Court Jury has rendered a verdict against registered investment adviser Sage Advisory Group, LLC (“Sage”) and its principal Benjamin Lee Grant (“Grant”) in a civil fraud casefiled by the Securities and Exchange Commission(“SEC”). The complaint alleged that Grant devised a scheme to convince his former clients to transfer their assets to Sage using statements the SEC contended were materially false and misleading.

In 2005, Grant left his employer broker-dealer Wedbush Morgan Securities (“Wedbush”) to launch his own advisory firm, Sage. Grant’s customer accounts at Wedbush totaled approximately $100 million in assets, and were being managed by investment adviser First Wilshire Securities Management (“First Wilshire”) based out of Pasadena, California.

After resigning from Wedbush, Grant sent letters to clients informing them that their accounts were being transferred at the suggestion of First Wilshire to a discount broker.  The letter also falsely informed clients that their fees would increase from a ” 1% management fee paid to First Wilshire plus Wedbush’s brokerage commissions to a 2% “wrap fee” paid to Sage” because it was less expensive than their previous arrangement. Furthermore, the letter stated that to avoid any disruption to the to the management of their assets, clients would have to sign and return all new advisory and custodial account documents immediately. Grant was able to double his compensation as a result of the scheme.

“This case sends an important message to investment advisers that they must put the needs of their clients before their own,” said Andrew Ceresney, SEC Enforcement Director. Please note that wrap fee programs were part of the SEC’s examination priorities for 2014. The SEC’s Office of Compliance Inspections and Examinations (“OCIE”) recently sent out an Information Request List to registered investment advisers regarding wrap fee programs. Now is a good time to review your firm’s client disclosure documents to ensure disclosures are accurate and fully describe the adviser’s services.

For further information on this and other related subjects, please contact us at info@jackolg.com or (619) 298-2880.

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