From the outside looking in, 35-year-old N.Y.-based twins Adam and Daniel Kaplan were building an enviable advisory practice. In just five years, the brothers signed 244 clients, many of them friends, family and acquaintances, while working with leading Wall Street firms like Merrill Lynch.

But the Kaplan’s success story began to unravel almost as quickly as it began, when client complaints began to surface. Today, the Securities and Exchange Commission charged the twins, who are no longer registered, with allegedly engaging in a variety of fraudulent schemes, including tapping client advisory and bank accounts, credit cards and lines of credit to misappropriate more than $5 million from at least 60 of their advisory clients.

The Kaplans used some of the money to fund their lavish lifestyle, including visits to luxury hotels and shopping at jewelry stores and luxury apparel stores, the SEC said. But to cover their tracks, they also used some of the funds to make Ponzi-like payments to clients who had started complaining about their misconduct, the SEC said in its complaint.

The twins, who both reside in the Long Island municipality of Great Neck, N.Y., were associated as investment advisor representatives with three SEC-registered investment advisor firms between 2016 and 2021, according to the SEC. They spent a year at Morgan Stanley, a year at Merrill Lynch until they were fired in 2018, and then, from May 2018 until their termination in July 2021, they were registered at IHT Wealth Management LLC.

The complaint alleges that, among other things, the Kaplans overcharged clients for advisory fees by fraudulently inflating the fee amounts in clients' advisory agreements, without the clients' consent, so that they could collect higher fees than their clients had agreed to pay.

“In total, from at least May of 2018 through at least October of 2022, defendants misappropriated at least $4 million from clients through the electronic charges they fraudulently applied to clients’ credit card and bank accounts. Adam Kaplan charged clients at least $2.94 million, and Daniel Kaplan charged clients at least $1.11 million,” the SEC said.

The Kaplans told some of these clients they would pool their money into an “umbrella account” with other clients’ funds, invest the funds in securities and later deposit the clients’ pro rata share of the securities purchased into the clients’ custodial account, the complaint said.

“These representations were false. Defendants did not use these client funds to invest in securities for their clients. They did not maintain an ‘umbrella account.’ Instead, Defendants transferred these funds to their own personal bank accounts and used them for their personal use,” the SEC said.

The twins also convinced several clients to open lines of credit at a specified bank and to give the advisors access to the accounts.  “To misappropriate certain clients’ funds, defendants requested draws on the client’s LOC, transferred the proceeds to that client’s bank account, simultaneously initiated a fraudulent electronic debit, credit, or check charge to the client’s bank account through an electronic payment account, and then used the clients’ funds for their own benefit,” the SEC said.

The SEC's complaint, filed in the United States District Court for the Eastern District of New York, charges Adam and Daniel Kaplan with fraud and violations of the Investment Advisors Act and seeks injunctions, disgorgement, prejudgment interest and civil penalties.

Merrill Lynch fired both the Kaplans in March 2018 for alleged “conduct involving utilizing client logon credentials to access client accounts," according to BrokerCheck records.

IHL terminated both the advisors for cause in July, 2021. In each of the twin’s BrokerCheck reports, IHL noted that the firm had “placed a formal complaint with the SEC that his adviser fees were in the 2.5% - 3% range with a signed agreement stating fees should be 1%.”

The Kaplan brothers could not be reached for comment.