The Securities Exchange Commission (“SEC”) recently filed a complaint for fraud in connection with risky securities sold by a Registered Investment Advisor. The SEC complaint states that Tamara Steele and her investment advisory, defrauded retail investors by recommending high risk technology stocks with massive commission markups that were not disclosed to the clients. According the to the SEC complaint, from December 2012 through to October 2016 Steele and her wholly owned investment advisory Steele Financial marketed over $13 million of securities issued by a private company and was acting as a broker for the company.
The SEC complaint states that the high-risk securities were connected to a private issuer who the investment advisor had a relationship with. The registered investment advisor was receiving high commissions on these private securities in the range of 8 to 18% – a material piece of information that was not disclosed to investors in violation of the duty of care and duty of loyalty and breach of the investment advisors’ fiduciary duty. The SEC complaint goes on to state that Steele and Steele Financial marketed and sold these high-risk securities to clients even though neither entity was registered as a broker.
The clients who were marketed this product were not accredited investors. Rather most of the investors were employees of a school system. Steele was marketing these risky private securities while working for a broker dealer known as Comprehensive Asset Management. Steele was fired after disclosing to the broker dealer that she had been marketing the private securities without the firms approval or knowledge – a practice known as selling away. As stated in our post on Selling/Trading away FINRA rules mandate that an investor advisor provide prior notice to the broker dealer and receive approval for all private securities marketed. Brokers are required to report in writing.