The SEC announced it settled fraud charges against a former Ameriprise advisor who steered clients into a cryptocurrency enterprise that turned out to be a money laundering scheme.
From May 2019 to December 2019, Arthur S. Hoffman, 45, of Peoria, Ariz., recommended that eight of his clients invest in securities issued by Zima Global Ventures LLC, which purported to use investor funds to trade cryptocurrencies and other digital assets for profit, the SEC said. But Hoffman, the SEC said, hid from his clients that Zima had agreed to lend him up to $1.5 million at 2% interest in return for his solicitations of clients and that, in most cases, Hoffman already owed Zima tens of thousands of dollars under that agreement.
The SEC said Zima collapsed in January 2020 when its principals, John Michael Caruso, 28, of Scottsdale, Ariz., and Zachary Salter, 27, of Paradise Valley, Ariz., were arrested and charged by the federal criminal authorities with conspiracy to commit wire fraud and money laundering, leaving six of Hoffman's clients with total losses of more than $610,000.
The SEC's complaint charges Hoffman with violating the antifraud provisions of the securities and investment advisors’ laws. The SEC said Hoffman, without admitting or denying the allegations of the complaint, consented to the entry of a judgment imposing a permanent injunction, which is subject to court approval. The complaint also seeks the return of ill-gotten gains plus prejudgment interest and civil penalties.
Hoffman, the SEC complaint said, solicited his clients through emails, text messages and telephone calls. They invested more than $640,000 in digital assets in 10 transactions, and Hoffman received at least $170,000 in loans from Zima. His receipt of those loans coincided with investments made by his clients in the digital assets, the complaint said.
The complaint said one client, who along with another invested more than $350,000 in the digital assets from about May 2019 to August 2019, inquired as to whether Hoffman received compensation from Zima for recommending the digital assets. Hoffman replied “that he was limited to receiving a 1% commission because he recommended the membership units to clients in his capacity as an Ameriprise advisor,” the complaint said.
But that was false because Ameriprise’s policies and procedures prohibited Hoffman from recommending the investments to clients, which Hoffman was aware of, the complaint said. “It was also false and misleading because Hoffman’s true compensation was low-interest loans from Zima that ultimately totaled more than 25% of what his clients invested,” the complaint said.
Hoffman, the complaint said, deceived clients by also concealing his activities from Ameriprise’s compliance department, including by using a non-Ameriprise email account to communicate with clients, submitting false and misleading information to Ameriprise concerning his outside business activities and submitting false explanations to Ameriprise concerning wire transfers from his clients’ accounts to Zima.
Upon learning that Ameriprise had planned to contact two of his clients to inquire about wire transfers from their accounts to Zima, the complaint said Hoffman told the clients not to divulge to Ameriprise that he solicited their investments.
In May 2020, Hoffman was fired by Ameriprise and at the same time barred by the Financial Industry Regulatory Authority for failing to cooperate with FINRA’s investigation of his activities concerning Zima Global Ventures, the complaint said. He could not be reached for comment.
Hoffman had worked at several other firms, beginning his career in 1999 with Morgan Stanley, according to BrokerCheck. He moved to Merrill Lynch in 2003 and in 2009, he went to Wedbush Securities before joining Ameriprise in 2016.
While at Wedbush in 2016, Hoffman was accused by a client of investing her funds without authorization in excessively risky securities and lying to her about the money left in her account after incurring substantial investment losses. He and Wedbush settled the dispute for $329,500, of which Hoffman paid $95,000, the complaint said.