The SEC has filed civil charges against Westport Capital Markets LLC and principal Christopher E. McClure. The Connecticut-based, dually registered brokerage firm and investment adviser and its principal are accused of defrauding clients, costing them over $1M in losses.
According to the regulator’s securities fraud complaint, the investment advisory firm and McClure invested clients’ money in risky securities on numerous occasions, resulting in hundreds of thousands of dollars in undisclosed mark-ups that went to Westport even as the clients lost more than $1M. The broker-dealer would allegedly buy securities from underwriters at a reduced rate and later re-sell them to its own clients at the full public offering price while keeping the difference.
Westport and McClure are accused of making false and misleading representations to clients about the compensation that the financial firm received from their accounts. Also, the brokerage firm is accused of receiving 12b-1 fees, which are mutual fund distribution fees, when clients’ money was placed in certain mutual fund share classes and again not telling clients about these fees. The SEC said that the fees created a conflict. McClure and Westport allegedly invested clients in mutual fund shares that charged these fees even when less expensive shares that didn’t carry the fees could have been purchased instead.
According to the Commission, the firm’s advisory clients paid about $780K in undisclosed fees and mark-ups, in addition to the fees that they knew they were paying Westport.
The SEC said that Westport and its principal had a fiduciary obligation to their investment advisory clients and it was their job to manage their accounts in a manner that advocated for the latter’s best interests. Instead, said the regulator, the two of them violated that obligation.
Not only that, maintains the regulator, but Westport did not give clients all the information they needed to make an informed choice when they gave their consent to Westport to buy the securities involved nor did it disclose that the firm had monetary conflicts of interest at play.
Now, the regulator wants disgorgement of ill-gotten gains, along with interest, injunctive relief, and penalties. The SEC is demanding a jury trial.
Read the SEC Complaint (PDF)
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Investment Adviser Faces Charges That He Bilked Older Investors of $5.2M, Stockbroker Fraud Blog, November 21, 2017
Securities Fraud Settlements: HSBC, Deutsche Bank, and Citi Settle Libor Class Action for $132M & RBS Settles Mortgage Bond Trading Case for $44M, Institutional Investor Securities Blog, October 31, 2017
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