A California investment advisor who had been banned from several broker-dealer platforms was charged, along with his son, whom he impersonated to advise clients, and their investment firm, Sztrom Wealth Management Inc., with defrauding advisory clients.
The Securities and Exchange Commission said Michael Sztrom, 66, and David Sztrom, 30, of Rancho Santa Fe, Calif., violated their fiduciary duties by deceiving their advisory clients. The complaint said the duo concealed that Michael, the father, was not associated with any registered investment advisor, was prohibited from providing investment advice under the aegis of the clients’ registered investment advisor, and that he impersonated his son on telephone calls to advise clients.
According to the complaint, Michael Sztrom, who had been an advisor for 15 years, resigned from his investment advisory firm in August 2015 and planned to form his own investment advisory business. The SEC said he learned upon resigning that he was under a regulatory investigation and that several of the clearing broker-dealers would not allow him to use their platform to execute trades for clients while the investigation was pending.
According to BrokerCheck, Michael Sztrom settled three customer disputes for unsuitable trading in preferred stocks, corporate bonds and common stocks. The settlement amounts ranged from $400,000 to $1.7 million.
The SEC said Michael and his inexperienced son David, who was in his early 20s at the time, contacted Advanced Practice Advisors LLC (APA), a registered investment advisor in La Quinta, Calif., and its CEO, Paul C. Spitzer, seeking to associate with APA. Spitzer, the complaint said, did not allow Michael Sztrom to associate with APA because of his pending status, but David was allowed to serve as an investment advisor representative with the firm.
David and his company, Sztrom Wealth Management Inc., an unregistered investment advisor, provided investment advice to a group of APA clients who had been advised by his father at another firm. Despite the ban, the SEC said Michael Sztrom continued to serve as an investment advisor to clients and used the services of APA’s broker-dealer, Charles Schwab & Co., by impersonating David on at least 38 separate telephone calls, sometimes when David was present. Schwab discovered the deception and immediately terminated David’s access to its platform and gave all APA clients 90 days to either find an investment advisor other than APA or move their brokerage accounts to another brokerage firm, the SEC said.
The SEC said the fraud occurred from November 2015 through March 2018. The regulator said David was complicit in misleading advisory clients because he assisted Michael in accessing confidential information from the APA system. Furthermore, the SEC said, David knew his father was communicating with APA clients using his personal cell phone rather than the APA email system, which not only violated APA’s corporate policies and procedures but also meant that Michael’s communications with APA clients, including investment advice and messages about trades he was executing, were not monitored or preserved as required by the firm.
The SEC concluded that the father and son did not disclose to clients that Michael was providing investment advice to them without being associated with APA and without compliance oversight by APA or any other entity.
The complaint, filed in federal court in the Southern District of California, charges Michael Sztrom, David Sztrom and Sztrom Wealth Management Inc. with violating the antifraud provisions of sections of the Investment Advisers Act of 1940. It further charges David Sztrom with aiding and abetting APA's books and records violations of the Advisers Act and Rule. The SEC seeks permanent injunctions and civil money penalties against all defendants.