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Advisor Banned Over Alleged Conflicts of Interest Disclosure Failures

By Alex Padalka July 2, 2019

The SEC has barred an investment advisor over alleged failures to disclose conflicts of interest in securities that were subject to a previous enforcement action by the regulator, the SEC says.

From 2014 to early 2016, Fieldstone Financial Management Group and its principal Kristofor Behn allegedly convinced 40 retail clients to invest more than $7 million in securities of Oregon-based Aequitas Management, according to a litigation release published by the regulator.

In March 2016, the watchdog accused Aequitas of running a $350 million Ponzi scheme.

Fieldstone and Behn allegedly didn’t disclose that Fieldstone received a $1.5 million loan and access to a $2 million line of credit from Aequitas that created “a significant financial incentive” for them to recommend Aequitas securities, the SEC says.

Fieldstone and Behn also allegedly made several material misstatements and omissions in documents filed with the SEC related to the Aequitas loan, according to the litigation release. In addition, Behn allegedly used $500,000 of a client's $1 million investment with Fieldstone to cover personal expenses, including his personal taxes, the regulator says.

Fieldstone and Behn consented to a cease-and-desist order and to pay disgorgement and prejudgment interest of $1.048 million and a $275,000 penalty, without admitting or denying the SEC’s findings, the regulator says.

The SEC also permanently barred Behn from the financial services industry.

The SEC’s staff chose to address Behn’s infractions in the language of his fiduciary duty.

“Behn flagrantly disregarded his most basic duties as an investment adviser by concealing the significant financial incentives he and his firm would receive by recommending investments in Aequitas,” Erin Schneider, director of the SEC’s San Francisco regional office, says in the litigation release. “The Commission is committed to rooting out breaches of fiduciary duty to retail investors.”

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Under the SEC’s recently approved Regulation Best Interest, brokers, unlike investment advisors, are only held to the best-interest standard, although SEC Chairman Jay Clayton has said the regulation “incorporates fiduciary principles,” as reported.

Last month, the SEC had to put out a clarification that investment advisors would be permitted to use the term “fiduciary” in their disclosures.

The term had not been included on the list of options for filling out the Customer Relationship Summary, known as “Form CRS.”