A Foxboro, Mass., advisor and his firm have agreed to pay more than $1 million to the victims in a conflict of interest case, the Securities and Exchange Commission announced Monday.
Kristofor R. Behn and his firm Fieldstone Financial Management Group were charged by the SEC with defrauding retail investment advisory clients by failing to disclose conflicts of interest related to their recommendations to invest in securities issued by affiliates of Oregon-based Aequitas Management.
Behn also was accused of soliciting a $1 million investment from one client and within days using $500,000 of the investment to pay his taxes and for other personal expenses, the SEC complaint said.
Without admitting or denying guilt, Behn and the firm agreed to pay disgorgement and prejudgment interest costs of $1,047,971 and a penalty of $275,000, all of which will be distributed to harmed investors, the SEC said. Behn will also be permanently barred from the financial industry.
Between 2014 and early 2016, about 40 clients of Behn and Fieldstone invested $7 million in securities issued by Oregon-based Aequitas Commercial Financial, an affiliate of Aequitas Management. Behn and Fieldstone failed to disclose to their clients that Aequitas had provided Fieldstone with a $1.5 million loan and access to a $2 million line of credit, both of which had terms that created a significant financial incentive for Behn and Fieldstone to recommend Aequitas securities to their clients, the complaint said.
As Behn was arranging the Aequitas loan and line of credit, he held Aequitas out as an attractive investment opportunity to Fieldstone advisory clients, the SEC said. In March 2014, Behn even sent an email to all Fieldstone clients announcing a new “strategic affiliation” with Aequitas and describing Aequitas as an attractive investment opportunity for clients to consider. Behn omitted from his email that he was then negotiating the loan and line of credit, the SEC said.
Behn and Fieldstone made material misstatements and omissions in reports filed with the SEC, the complaint said. Behn founded Fieldstone and originally held 100 percent interest in the firm, although he later sold a minority interest, the SEC said.
“Behn flagrantly disregarded his most basic duties as an investment advisor by concealing the significant financial incentives he and his firm would receive by recommending investments in Aequitas,” said Erin E. Schneider, director of the SEC’s San Francisco Regional Office.