Cetera Advisors Agrees to $5,614,509 Settlement From SEC

Cetera Advisors LLC and Cetera Advisor Networks LLC have been charged by the Securities Exchange Commission (SEC) for perpetrating fraud on their advisory clients on account of their failure to disclose several sources through which they earned money. A final judgment against the firm has now been obtained by the SEC.

An amended version of the SEC complaint was filed in the United States District Court for the District of Colorado on the 11th of October 2019. According to it, the firm receiving compensation in the form of 12b-1 fees, administrative fees, revenue sharing, and mark-ups amounted to a conflict of interest. Further, a lack of adequate disclosure on that account constituted a breach of fiduciary duties and amounted to fraud on retail advisory clients.

The filing states that investments that cost more than comparable, available investments were regularly recommended by Cetera Advisors and Cetera Advisor Networks. This was despite being paid by these clients for the selection and management of their portfolios.

In addition, the material conflict of interest inherent in these recommendations, through which they generated millions of dollars in additional revenue for the firms, was never made known to clients.

A final judgment that enjoined both the Cetera entities permanently was agreed upon by them. A total amount of $5,614,509 is to be paid by them as disgorgement and an additional $990,961 as prejudgment interest. Additionally, they will need to pay a million dollars separately as a civil penalty.

You should be aware of financial industry fraud, whether you are a client or an advisor. Fraud can occur in a variety of ways, including stealing from clients, forging their signatures on trading authorization forms, and making unsolicited investment offers. There are also statutes of limitations that apply to fraud, such as the Securities and Exchange Commission’s rules on securities solicitation.

Unsolicited investment offers

Investing fraud is becoming more prevalent. According to the Financial Conduct Authority, sophisticated schemes can defraud even experienced investors.

Doing your own research is the best way to avoid investment scams. Before making a decision, ask your broker to verify the information you’ve received and consult with a third party.

You can also use the SEC’s EDGAR filing system to research potential investments. A prospectus or offering circular is available for many investments. If someone tells you that a document isn’t required, hang up and walk away.

A pitch that promises a guaranteed return is another red flag. An investment advisor will almost never provide returns that are not available to the general public.

Be wary of clone companies. They may appear to be associated with a legitimate company, but they are actually set up by a scam artist. They may offer to buy or sell stock and may request personal information. They may also send phony account statements via email.

Fraudulently obtaining client signatures on trading authorization forms

FINRA issued Regulatory Notice 22-18 to its member firms in response to a recent spate of alleged forgeries. The notice did not name specific brokerage firms, but it did include a few helpful hints to help member firms monitor their operations for infractions.

It is not acceptable to forge a client’s signature on a trading authorization form. It could not only be a costly error, but it could also jeopardize your customer’s bank account funds. The good news is that if you are not an unauthorized party, you may be able to recover your funds. However, you may be required to file a lawsuit and/or appear in court.

Aside from the legal ramifications of forging a customer’s signature, a few other issues have surfaced. A number of firms, in particular, have identified signature blunders in a variety of forms, including account activity letters and wire instructions. Forged customer signatures on account opening documents and discretionary trading authorizations have been discovered by other firms.

Stealing from Clients

It is theft to withdraw money from a client’s account without their permission. Financial advisors can steal from their clients in a variety of ways. Examples are using a stolen credit card to pay bills, stealing a person’s money, and taking possession of their personal property.

A former financial adviser at a New Jersey bank was recently charged with stealing more than $5 million from two different clients. The advisor then used the stolen funds to purchase a private jet and a country club membership.

Another financial advisor was found guilty of stealing from two elderly clients. Kraig Gier, the owner of a security planning corporation, admitted to stealing $1,087,964 from his clients’ accounts. In addition, he was charged with wire fraud and aggravated identity theft.

From 2007 to 2019, a Morgan Stanley advisor was accused of fraudulently transferring five clients’ funds. He impersonated them on bank authorization forms and sold securities in their names without their knowledge. Later, he returned the funds. Law enforcement was notified by the firm.

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