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Red Oak Blog

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Sunday, June 11 2017

Investment Advisor Barred from the Industry Due to Fraudulent Schemes

Marc Broidy has been barred from the industry after the SEC discovered that he defrauded his clients out of nearly $2 million. The United States District Court for the Eastern District of New York entered a final consent against Broidy and his firm, Broidy Wealth Advisors, LLC. The SEC charged Broidy with fraudulently overbilling his clients and using the money to pay for personal expenses such as his home mortgage, overseas trips, and leases on two Mercedes-Benz vehicles.

Broidy allegedly misappropriated $865,000 in client assets from their trusts for which he was named as trustee. While Broidy’s past actions represent a departure from the norm of acceptable behavior engaged in by most advisors, they also highlight the potential pitfalls advisors face, if they consent to being named as trustee of a client’s trust, and why such appointment should generally be avoided. In addition, Broidy allegedly overbilled clients by approximately $643,000. Broidy altered brokerage statements in an effort to hide the excess management fees he charged his clients. Broidy further defrauded his clients by failing to disclose his affiliation with privately-held companies in which they were invested. While again, Broidy’s actions were not representative of those of most advisors, who are ethical, his failure to disclose his affiliations with those companies as an outside business activity and all resulting conflicts of interest is another pitfall all advisers should avoid.

Broidy consented to the issuance of a final judgment and order, barring him from the securities industry as a result of his fraudulent schemes. He was ordered to pay $1,719,464 in disgorgement and faced criminal charges related to his conduct.

Contact us if you have questions regarding quarterly fee audits, outside business activities, conflicts of interest or other regulatory compliance matters.