SEC accuses Florida RIA of pocketing $ 160,000 in “unwarranted” charges
The Securities and Exchange Commission (SEC) has charged a Fort Myers, Florida-based RIA and its principal for allegedly defrauding $ 160,000 advisory clients by charging improper transaction fees.
The agency claims that Pennsylvania-resident Dean Patrick McDermott and his RIA, McDermott Investment Advisors, illegally invested clients in versions of securities that had “significant transaction sales fees” while identical alternatives without those costs were also available.
McDermott and its RIA – through an affiliate broker, McDermott Investment Services, also owned by McDermott – are charged with “double deduction” by receiving both the advisory fees and the fees generated by the sale of the securities. more expensive, the SEC said. McDermott’s brokerage firm is based in Bethlehem, Penn.
According to the SEC complaint, by failing to seek the best execution of transactions and by not disclosing the conflicts of interest “inherent” in transactions, McDermott and its companies “are making money at the expense of their clients and without the knowledge of their clients”.
The SEC seeks a permanent injunction, reimbursement of ill-gotten gains plus interest, as well as additional civil fines and penalties.
Washington, DC-based attorney Thomas J. McGonigle representing McDermott declined to comment.
McDermott, in his BrokerCheck report, provides the following commentary on the SEC investigation as part of its disclosures:
“Where applicable, the registered representative provides both a reduced advisory fee through the investment advisor as well as a reduced transaction fee through the dealer. The registered representative believes that he has acted in the best interests of his clients. The registered representative believes he has meritorious defenses against the allegations and intends to defend himself vigorously. ‘
Among other investment products, the SEC said McDermott and its RIA invested in unitary investment funds (UITs) on behalf of advisory clients. An ITU is an investment product in which the creator, or “sponsor”, chooses securities and deposits them in a trust for a predetermined period of time.
The products were available to McDermott customers in two versions, the SEC said. There was a “paid” version, for advisory clients paying a periodic advisory fee, and a “standard” version for retail broker clients who were not part of an advisory program and paid for the services on a transaction-to-transaction basis. . .
Investors who buy the more expensive standard version of ITUs incur two different fees, the SEC said. First, investors were charged a 0.50% “start-up and development fee”, which was paid to the ITU sponsor. Second, investors had to pay a much larger “transaction sales fee”, of which around 90% was ultimately paid to the broker making the transaction, with the remainder being retained by the sponsor.
Between March 2013 and December 2014, McDermott and his RIA reportedly purchased more than $ 5.7 million in standard ITUs across 169 advisory accounts. McDermott’s decision to purchase the standard ITUs caused its RIA’s advisory clients to pay approximately $ 160,000 in avoidable transactional selling fees, the SEC said.
The lawsuit against McDermott and his companies was filed in the U.S. District Court in eastern Pennsylvania on September 13.
McDermott Investment Advisors managed just over $ 201 million in assets on 675 accounts as of April of this year, according to the company’s latest Form ADV.
Read the SEC’s complaint against McDermott here.