SEC Charges Investment Advisers With Defrauding Retail Advisory Clients

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09/14/2018 08:55 AM EDT

The Securities and Exchange Commission today charged an Indianapolis-based investment advisory firm and its sole owner with selling approximately $13 million of high-risk securities to more than 120 advisory clients – many of whom are current or former teachers or other workers in public education – without disclosing that the firm and its owner stood to receive commissions of up to 18 percent from the sales. 

The SEC's complaint alleges that from December 2012 to October 2016, Steele Financial Inc. and Tamara Steele sold to advisory clients and other investors more than $15 million of the securities of Behavioral Recognition Systems Inc. (BRS), a private company previously charged with fraud by the SEC.  All told, Steele and Steele Financial received commissions of cash and warrants from BRS that were worth more than $2.5 million.  Steele and Steele Financial allegedly targeted their own advisory clients who generally did not invest in individual stocks, selling more than 120 clients approximately $13 million of BRS securities without disclosing that the defendants were receiving commissions from BRS.  The complaint further alleges that the defendants created false invoices and took other steps to conceal their involvement selling BRS securities.    

"We allege that Steele took advantage of her own advisory clients, including clients whom she herself described as 'two-pension, two Social Security families,'" said Antonia Chion, Associate Director of the SEC's Division of Enforcement.  "Investment advisers must put their clients' interests ahead of their own and make full and fair disclosure of financial conflicts of interest."    

The SEC's complaint, filed in federal district court in Indiana, charges the defendants with violating the antifraud and broker-dealer registration provisions of the federal securities laws.  The SEC is seeking disgorgement of ill-gotten gains with interest, penalties, and permanent injunctions.  

The investigation has been conducted by Peter Fielding and Joseph Griffin and supervised by George Bagnall, Stacy Bogert and Antonia Chion.  The litigation will be led by Gregory Bockin and Kevin Lombardi and will be supervised by Cheryl Crumpton.

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