SEC Stops $5M Fraud, Ex-Investment Adviser Faces Criminal Charges, Another Pleads Guilty, and a Broker is Barred for Bilking Elderly Customer Through Variable Annuities

SEC Wins Asset Freeze Against Two Ex-Brokers in Alleged $5M Fraud
The Securities and Exchange Commission has obtained an asset freeze from a court to stop the alleged ongoing fraud by ex-brokers Douglas Albert Dyer and James Hugh Brennan III. They are accused of raising over $5M from investors and improperly using their money. Both men have disciplinary histories.

According to the Commission, since 2008 Dyer and Brennan had sold purported shares in several companies to over 240 investors but did not register the stock. They allegedly moved this money into their personal accounts or to their wives’ accounts. They also purportedly did not disclose that Brennan was banned from the brokerage industry or that Dyer had been fined and suspended for unrelated unauthorized transactions involving customer accounts.

Also named in the SEC case is Broad Street Ventures, which is Brennan and Dyer’s company. Their wives are relief defendants. The regulator wants ill-gotten gains, interest, penalties, and permanent injunctions.

Ex-Investment Adviser Faces Criminal Charges for Allegedly Stealing Over $5.1M from Clients
Bradley Smegal is charged with securities fraud. The ex-Washington State investment advisor is accused of stealing over $5.1M from at least 14 clients.

Prosecutors say that between 8/07 and 1/13 Smegal persuaded clients to invest with entities that he said “guaranteed” specific return rates and were “conservative.” According to court documents, he failed to disclose he had a stake in the investments, and he moved $825,00K of the funds into his own account.

Smegal was a registered broker adviser only through 2012. He was let go by Wells Fargo (WFC) in 2011 but allowed clients to think he was still employed there.

Ex-Financial Adviser Pleads Guilty to Securities Fraud
David Blaine Welliver has pleaded guilty to securities fraud. This is not his first offense.
In a parallel civil case that led to the criminal charge, the SEC sued Welliver in 2011. The regulator accused him of illegally mismanaging a mutual fund, using investors’ money as his own, and leaving shareholders holding investments that were worthless. He was barred from the industry and agreed to pay $1.1M. Now, the 56-year-old New York man faces up to five years behind bars.

This was not Welliver’s first fraud case. He was ordered to pay a $14.6M judgment against the Minneapolis Police Relief Association and the Minneapolis Firefighters’ Relief Association over pension fund fraud claims alleging that he did not properly manage their assets.

Broker Barred Over Fraudulent VA Recommendations to an Elderly Customer
The Financial Industry Regulatory Authority has barred broker Bernand McGee for making fraudulent annuity recommendations to a 71-year-old customer. According to the self-regulatory organization, McGee surrendered four variable annuities policies—an about $500K value—that belonged to this older client and used the money to purchase a charitable gift annuity from 54Freedom, which was a company that later proved fraudulent. As part of the order, the broker will have to pay about $250K in penalties.

At the time of the alleged elder financial fraud, McGee was registered as a representative with Cadaret Grant & Co. Inc. FINRA said that McGee made misrepresentations, including falsely notifying the elderly customer that she might have to pay a big tax liability if she didn’t purchase the charitable gift annuity (CGA). Her surrender of the variable annuities cost her about $36K in charges. The SRO also claims that McGee did not tell the elderly customer that he would be compensated about $50K in commissions for her purchase of the CGA.

Read the SEC Complaint in the Dyer and Brennan Case (PDF)

Former Investment Advisor Charged with Stealing $5.1 Million from Clients, United States Department of Justice, July 19, 2016

Investment Advisor Pleads Guilty to Defrauding Investors of More Than $1.2 Million, Justice.gov, July 13, 2016

Finra bars broker and orders $250,000 penalty for fraudulent annuity sales, InvestmentNews, July 20, 2016