The SEC charged a former broker in Ridgefield, Conn., with failing to disclose material conflicts of interest related to the sale of shares of the private fund he created.
The SEC alleges in its lawsuit that Donald H. Hunter, 52, established You Angel Finance LLC without Finra registration and, from late 2016 through 2018, raised about $430,000 from investors, claiming that the private fund was supplying seed capital to, or purchasing shares from, various small and micro-cap companies, including a private drug research company working on a treatment for Alzheimer’s disease, the SEC said.
“But instead of providing seed money to start-up companies, Hunter was lining his own pocket” with the funds he and his cohort raised, the SEC said in their case.
Hunter even “directed investors to pay for their shares by sending money to You Angel Fund bank accounts that Hunter controlled,” the SEC said.
Unbeknownst to his investors, Finra had already permanently barred Hunter in 2012 after determining he committed fraud in connection with the sale of promissory notes to some of his broker-dealer clients, the SEC said.
The SEC complaint alleges that Hunter had acquired the company's shares personally or through companies he controlled while a broker, but as a result of the Finra bar he was unable to sell them directly or indirectly to brokerage customers, as he had in the past.
The SEC further alleged that Hunter failed to adequately disclose that the fund purchased the shares from Hunter or entities he controlled, or that he set the prices at which he sold those shares to the fund.
Hunter’s “conduct has involved fraud, deceit, or deliberate or reckless disregard of regulatory requirements, and has resulted in substantial loss, or significant risk of substantial loss, to other persons,” the agency said in its filing.
The SEC claimed that Hunter violated the antifraud provisions of the Investment Advisers Act and is seeking disgorgement of ill-gotten gains, prejudgment interest, financial penalties and permanent injunctions against Hunter.
By law, investment advisors have a fiduciary duty to their investment advisory clients and are obligated to act in their clients’ best interests.
Hunter has asked for a jury trial, the SEC said.