Colorado Investment Firm Fined $200K For Investing Unqualified Buyers Into Unsuitable Investments
The US Securities and Exchange Commission (SEC) has ordered First Western Capital Management Co. to pay a $200K fine over allegations that, over a 7-year period, it invested over $666M of clients’ funds into securities that they didn’t qualify for. As a result, 81 clients were placed in securities that were reserved for qualified institutional buyers (QIBs), which are investors that have at least $100M in assets.
The firm is a Denver-based investment adviser. Our Colorado investment fraud lawyers at Shepherd Smith Edwards and Kantas are offering free case consultations to customers that were harmed by these unsuitable investment recommendations and sales that the SEC says were initiated by at least nine of First Western’s investment adviser representatives. Contact us today at (720) 439-2827.
81 Investors Placed In Unsuitable Investments That Lacked Protections
The account holders who were placed in investments that should have only been sold to QIBs included individual investors, trusts, small institutional accounts, and individual retirement accounts (IRAs).
According to the SEC, it was from at least 10/2010 though 7/2017 that First Western Capital Management bought the restricted shares at issue and allocated them to all client accounts, including those who didn’t fulfill the threshold requirements to be considered qualified institutional buyers.
QIBs not only have at least $100M in assets but also, they are considered to need less regulatory protections than inexperienced investors. QIBs are sophisticated investors and may include high net worth individual investors and entities, including savings and loan associations, employee benefits plans, investment companies, insurance companies, banks, and other accredited investors.
Clearly, it is not difficult to tell whether an investor is a QIB and which investors do not qualify. And yet, alleges the SEC, because of a failure to supervise, train, and “sufficiently educate” several of its investment advisers in line with the laws pertaining to QIBs, First Western Capital Management’s representative ended up using a “one-size-fits-all” strategy when they invested $666M of these 81 clients’ monies in investments not suitable for them and that did not afford the regulatory protections that they needed.
These transactions made up 9.4% of the firm’s total securities purchases and repurchases during the period at issue.
Investment Advisers and Their Fiduciary Duty
Investment advisers are fiduciaries, which means that they have an obligation to act in the best interests of their clients first over their own interests.
This duty stands not just during the time an investment recommendation is made to a customer, but also for the duration of the relationship between the adviser and the client. Investment advisers also must properly supervise their representatives to ensure that they don’t violate federal securities laws or engage in negligence or wrongdoing.
Inadequate supervision and/or placing customers’ funds in investments that are too risky, inappropriate, or don’t provide the proper regulatory protections can be grounds for an investment adviser fraud claim if significant losses result.
Contact our Denver securities fraud attorneys today. SSEK Law Firm has helped thousands of investors to recover their losses.