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Saturday, July 8 2017

Investment Advisory Firm Penalized for Stealing from Clients and Lying to SEC Regulators

Timothy F. Sexton is the founder, CEO, and investment adviser representative of Bantry Bay Capital, LLC. The SEC fined the firm and Sexton $100,000 and barred him from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization. He is also prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter of, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter. The SEC’s investigation found that Sexton charged clients excessive fees, misappropriated client funds, and committed fraud in his SEC regulatory filings.

During 2013 and 2015, Sexton engaged with two former clients from his previous employer. Sexton and these clients agreed to a fee equaled to .75% of assets under management in their respective accounts. The SEC found, however, that Sexton actually charged these clients 4.9% of assets under management in these two accounts. The SEC determined that Sexton collected a total of $225,971 in excessive advisory fees.

Sexton also advised these two clients about a “Money Market Fund,” for which clients wired to Sexton almost $250,000. He reportedly misappropriated this money for his own personal expenses, including a car, mortgage payments, credit card bills, and his children’s education expenses.

When confronted by the clients, Sexton claimed that the overcharged fees were a mistake and that he would return their investment money when it matured in March of 2016. In March 2016, Sexton sent an email to the clients that included a false brokerage statement that listed the Money Market Fund investment as being valued at $256,124.40. By the end of that month, he used money borrowed from other people to make 3 payments to the clients — $271,601.92, $15,087.94, and $256,389.40 — and claimed that they reflected repayment of excessive advisory fees and the Money Market Fund investment returns. The SEC found this conduct to be violations of Section 206(1) and 206(2) of the Advisers Act, which prohibits fraudulent conduct by an investment adviser; and Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and SEC Rule 10b-5, all of which prohibit fraudulent conduct in the offer or sale of securities and in connection with the purchase or sale of securities.

Lastly, Sexton reported on Bantry Bay Capital’s Form ADV that the firm had $25 million or more, or $100 million or more in assets under management as the basis for his SEC registration and 6 subsequent SEC filings. The SEC determined that he knowingly made this false statement because he knew that his firm’s assets under management never exceeded 4 million. As a result, the SEC found that Sexton committed fraud in violation of Section 207 of the Advisers Act, which makes it “unlawful for any person willfully to make any untrue statement of a material fact in any registration application or report filed with the Commission… or willfully to omit to state in any such application or report any material fact which is required to be stated herein.”

Timothy Sexton may no longer serve as an investment adviser or in any closely associated positions as a result of his conduct. Red Oak Compliance Solutions offers comprehensive compliance services to ensure that investment advisers create an adherable compliance policy program and charge a fee that is compliant under relevant rules and regulations. To read the full order, please click here.

If you have any questions or concerns about preparing for an audit or need any assistance with your compliance program, please contact us at 888.302.4594 (or email us at sales@redoakcompliance.com), and we will be happy to assist.