Compliance
Compliance Corner: SEC Charges Executives, RIA For $75 Million Alleged Fraud
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Securities and Exchange Commission
The Securities
and Exchange Commission has charged two North Carolina-based
executives, Gregory E Lindberg and Christopher Herwig, and their
Malta-based registered investment advisor, Standard Advisory
Services Limited, for defrauding clients out of more than $75
million through undisclosed transactions that benefited
themselves and their companies.
From July 2017 through 2018, Lindberg and Herwig, through Standard Advisory, breached their fiduciary duties to their advisory clients by fraudulently causing them to engage in undisclosed related-party transactions that were not in the best interest of their clients, the SEC said in its complaint.
The SEC’s complaint, announced on August 30, also alleges that the defendants misappropriated more than $57 million in client funds and that Standard Advisory collected more than $21.4 million in advisory fees generated in connection with these schemes.
In an attempt to conceal the fraud, Lindberg allegedly orchestrated the schemes through complex investment structures and a web of affiliate companies and allegedly used the proceeds to pay themselves or to divert the funds to Lindberg’s other businesses, the SEC said.
"We allege a massive fraudulent scheme, involving unique financial structures and various complex investments, orchestrated by the defendants for their own benefit over their advisory clients’ benefit," Osman Nawaz, chief of the division of enforcement’s Complex Financial Instruments Unit, said. "Today’s filing demonstrates that the SEC will take action to protect investors from investment advisors who attempt to evade fundamental fiduciary responsibilities."
The SEC’s complaint, which was filed in the US District Court for the Middle District of North Carolina, charges Lindberg, Herwig, and Standard Advisory with violating the antifraud provisions of the Investment Advisers Act of 1940, and seeks disgorgement plus prejudgment interest, penalties, and permanent injunctions.
