The holidays are a time for giving, but it is a time of reckoning for one New York City-based investment advisory firm that allegedly defrauded a charity out of more than $9 million, an act aided and abetted by a lawyer and an accountant.
The Securities and Exchange Commission on Tuesday charged Train Babcock Advisors LLC (TBA), as well as a New Jersey-based attorney and a New York-based accountant, in connection with a fraudulent scheme led by TBA's former principal, John Rogicki, to steal money from a charitable foundation established by an elderly widow client to donate her estate to health and education causes.
TBA, which is in the process of winding down its operations, has agreed to settle the SEC's charges by paying more than $1.7 million in disgorgement, interest, and penalties. TBA has also agreed to be censured and to withdraw its registration with the SEC as an investment advisor.
In October, the SEC filed a civil injunctive action in federal district court against Rogicki. In a parallel criminal action, Rogicki pleaded guilty to criminal charges brought against him by the Manhattan District. In December, Rogicki was sentenced to serve 30 to 90 months in prison and ordered to pay $6,728,391.77 to the foundation.
Neither the widow nor her foundation were named in court documents, per her estate’s request for anonymity. The widow died in 2001.
The SEC alleges that between 2004 and 2016, Rogicki carried out his fraud primarily by liquidating securities positions in the foundation advisory account, and then misappropriating trading proceeds by wiring the money from the foundation’s brokerage account to the account of the estate, which he controlled. Rogicki acted as the foundation's investment advisor and president, as well as a trustee.
He then transferred that money to himself or accounts for his benefit. Rogicki made more than 200 of these fraudulent transactions totaling $9 million during that period.
Separately, and in relation to this case, the SEC filed a complaint in federal court in Manhattan against one of the foundation's trustees, attorney Robert Gaughran, and its accountant, Kevin Clune, alleging that they aided and abetted the fraud perpetrated by TBA and Rogicki.
According to the SEC, Gaughran allegedly accepted outsized fees and ignored glaring signs of Rogicki's theft that were apparent from the foundation's brokerage statements and other documents that he regularly reviewed.
Gaughran also drafted the trust and estate papers that put Rogicki in charge of the charitable foundation and knew the size of the estate money that should have flowed to the charitable foundation, thereby ignoring Rogicki's alleged misappropriation of funds.