Near the end of September 2017, the Securities and Exchange Commission (“SEC” or the “Commission”) filed a complaint in the U.S. District Court for the Western District of New York, against an investment adviser and his assistant. The Commission alleged in the complaint that the investment adviser, Tarek D. Bahgat, misappropriated client funds in violation of the Investment Advisers Act of 1940 (the “Act”). The SEC further alleged that Bahgat’s assistant, Lauramarie Colangelo, aided and abetted him in violations of the Act. As a result, the SEC requested that the Court enjoin the adviser and his assistant from further violating the Act and order both parties to pay civil money penalties due to violations of the Act. The SEC also requested that the Court order the adviser and his company to disgorge any gains they received from the misappropriated funds.
Bahgat is an investment adviser who lived in New York until September 2016. From approximately December 2014 to September 2016, Bahgat breached his fiduciary duty to his clients by misappropriating an estimated $378,000 from their brokerage accounts. Bahgat was able to misappropriate client funds by gaining internet access to their brokerage accounts and then transferring funds from those accounts to Bahgat or his company, WealthCFO. In addition, Bahgat’s assistant, Colangelo, posed as clients during calls with broker-dealers and was subsequently granted bill-paying privileges which allowed her to transfer funds to Bahgat and Wealth CFO.
The Commission reiterated throughout the complaint that as an investment adviser, Bahgat owed his clients a fiduciary duty which required him to act in good faith and in the best interests of his clients. Bahgat breached his fiduciary duty to his clients and engaged in fraudulent activity, in violation of the Act, by misappropriating client funds. Colangelo, his assistant, aided and abetted Bahgat in misappropriating client funds.
This complaint serves as a reminder to investment advisers that they have a fiduciary duty and a duty of care to disclose all material facts—including conflicts and potential conflicts—to their clients. This complaint also serves as a formal notice to unregistered assistants that they too are responsible if they assist their employer in the commission of a crime. Unregistered assistants need to make sure they are acting ethically and in the customer’s best interests and report any misconduct immediately.
Click here to access the SEC’s full complaint. If you encounter situations related to conflicts of interest, a breach of fiduciary responsibility or any other compliance-related issue while providing advisory services to your clients, we can provide you with guidance to aid you in avoiding potential pitfalls.