Jurors in New Haven, Conn., federal court this week found that Connecticut-based dually registered investment advisory firm Westport Capital Markets LLC and its owner, Christopher E. McClure, knowingly defrauded their advisory clients by repeatedly purchasing securities that generated significant undisclosed compensation, enriching themselves at their clients' expense.

The jurors found that Westport Capital and McClure acted willfully and recklessly under the anti-fraud provisions of the Investment Advisers Act of 1940.

That follows actions from last September, when the court granted the SEC partial summary judgment against Westport Capital and McClure for failure to disclose their conflicts of interest and for aiding and abetting in unauthorized principal transactions resulting in $1 million in client losses and approximately $780,000 in undisclosed mark-ups and fees, on top of the advisory fees clients paid the firm.

The court this week affirmed that for several years Westport purchased securities from underwriters at a discount to the public offering price and then, acting as a principal for its own account, re-sold those same securities to its advisory clients at higher prices without disclosing the mark-up.

Westport and McClure sometimes held the securities in client accounts for only a short period of time before re-selling the securities and then investing client funds in another offering with a mark-up, the court found.

The court also affirmed the SEC’s assertion that Westport and McClure defrauded a client by acting contrary to the client's express objectives and instead repeatedly investing the client in risky offerings that generated hidden mark-ups.

Westport and McClure were found to have made false and misleading representations to clients regarding the compensation that Westport would receive from their accounts.

Westport, in its capacity as a broker-dealer, received undisclosed mutual fund distribution fees, known as 12b-1 fees, when Westport and McClure invested advisory clients in certain mutual fund share classes, the court found.

The court found that Westport and McClure did not disclose to clients the conflict of interest that this created. In certain instances, Westport and McClure invested clients in mutual fund shares with 12b-1 fees even when cheaper shares of the same funds were available without 12b-1 fees.