The SEC charged registered investment adviser Sage Advisory Group, LLC, and its sole principal / owner / employee with making material misrepresentations and omissions to his former brokerage customers in order to induce them to transfer their assets to his new advisory firm.  Benjamin Lee Grant, who started the advisory firm in October 2005, had been an RR with broker-dealer Wedbush Morgan Securities and had more than 300 customer accounts, representing over $100 million in assets.  Virtually all of those funds were being managed by CA-based RIA First Wilshire Securities Management.  

The letter also told Grant’s customers that if they wanted to avoid any disruption in First Wilshire’s management of their assets, they had to sign and return the new advisory and custodial account documents as soon as possible.  However, in subsequent communication with customers, Grant told them that First Wilshire was no longer willing to manage their assets at Wedbush and that they had to transfer to Sage.

    SEC Charges.   The SEC claims these statements were materially false and misleading because First Wilshire had not suggested a transfer from Wedbush and had not refused to manage assets at Wedbush. Moreover, Grant allegedly knew that the wrap fee would not be less expensive than the previous arrangement, and that he failed to disclose that the switch from Wedbush to the discount broker would result in significant savings that would flow to Grant and Sage, rather than to the advisory clients.  As a result, compensation to Grant and Sage would be substantially increased - and, in fact, once the customers transferred their accounts, Grant more than doubled his own compensation.

The actions by Sage and Grant violated the '33 Securities Act [Sections 17(a)], the '34 Securities Exchange Act [Section 10(b), Rule 10b-5], and the Investment Advisers Act of 1940 [Sections 204A, 206, 207, and Rules 204A-1 and 206(4)-7].  The SEC seeks, among other things, disgorgement of ill-gotten gains, pre-judgment interest, and civil penalties.   [SEC Litigation Rel. 21672, 9/29]

For further details, click onto:   [ SEC Complaint, Case 1:10-cv-11665, 9/29 ]