U.S. District Court awarded the SEC final judgments against Connecticut-based registered investment advisor firm Temenos Advisory Inc. and its former CEO, George Taylor, for putting clients into risky private investments and hiding fees and commissions.
The SEC sued Temenos and Taylor in July 2018 for allegedly putting $19 million of investor money, including elderly investors' retirement savings and pension plans, into four risky, illiquid private securities offerings without performing due diligence, the SEC said in a release today.
The U.S, District Court for the District of Connecticut entered final judgments by consent against Temenos and Taylor yesterday. Pursuant to the final judgments, the defendants did not admit nor deny allegations in the SEC's complaint, are permanently enjoined from violating antifraud and broker registration provisions of U.S. securities laws, the SEC said.
“From 2014 through 2017, Temenos and Taylor defrauded their advisory clients and prospective clients by steering the clients into unsuitable investments and by hiding commissions and other financial incentives that Temenos and Taylor were pocketing,” the SEC said.
While Temenos and Taylor charged advisory fees for what they billed as unbiased financial advice, they allegedly “concealed from clients the high commissions they were pocketing from these risky and unsuitable investment recommendations”—including cash and ownership stakes in the private companies they recommended—and fraudulently misled clients about the risks and prospects of the investments, the SEC said. A number of clients were overbilled, the regulator alleged.
Because Temenos and Taylor billed themselves as investment advisors, but then also pocketed commissions from the private placement companies, they illegally acted as unregistered broker-dealers, the SEC alleged in the case.
“Investment advisors must put clients’ interests ahead of their own,” said Paul Levenson, director of the SEC’s Boston Regional Office. “Temenos violated that duty by placing clients in risky private placements while downplaying the risk of those investments and concealing the financial conflicts that motivated the recommendations.”
The U.S. District Court for the District of Connecticut ordered Temenos to pay $768,137 in disgorgement, prejudgment interest of $56,706 and a civil penalty of $775,000. Taylor was ordered to pay $321,956 in disgorgement, prejudgment interest of $22,358 and a civil penalty of $179,618.
Pursuant to the final judgments, the defendants, without admitting or denying the allegations in the SEC's complaint, are permanently enjoined from violating the antifraud provisions of the Investment Advisers Act of 1940 and the broker registration provisions of the Securities Exchange Act of 1934.
“Through their conduct, Temenos and Taylor violated the fiduciary duty that every investment adviser owes to its clients and prospective clients—to put client interests first, to deal with clients with the utmost honesty, to disclose all conflicts or potential conflicts of interest, and to use reasonable care in providing investment advice,” the SEC said.
Neither Taylor nor representatives of Temenos had responded to requests for comment at press time.