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Regulatory Sanctions

CT Advisor and Principal Caught Breaching Fiduciary Obligations

December 12, 2017

by Howard Haykin


With the BD/RIA and its Chief Cook and Bottle-Washer nabbed by the SEC for violating fiduciary obligations to advisory clients, what’s to become of the firms, employees and clients? It’s the ultimate price to be paid when there are no apparent checks and balances on those at the top.


The SEC charged Westport Capital Markets and Christopher McClure with breaching their fiduciary duties and defrauding advisory clients, including by repeatedly purchasing securities that generated significant amounts of undisclosed compensation.


WESTPORT CAPITAL MARKETS, LLC.    Westport Capital Markets is a Westport,CT-based dually registered investment adviser (RIA) and broker-dealer (B/D). The firm has been a FINRA member since 1996 and an SEC-registered advisor since 1997. According to FINRA BrokerCheck, the firm also does business as … Gilman Hill Asset Management, Fava Wealth Management, Whitfield Retirement Services, and Whitfield Wealth Management.


CHRISTOPHER MCCLURE.    McClure has 25 years’ experience with 5 firms. Prior to joining Westport in 2001, McClure had been associated with Prudential Securities (1997-2001), Merrill Lynch (1995-1997), Smith Barney (1993-1995), and Lehman Brothers (1992-1993). Since 2007, McClure has been the sole or majority owner of Westport and has served as the firm’s President, CEO, CFO, FinOp and CCO. He holds the Series 7, 24, 27 and 53 Licenses.


SEC FINDINGS.    Westport and McClure, while serving as investment advisers, violated their fiduciary duty and defrauded their clients. Westport and McClure obtained standing authority to make investment decisions in client accounts, and misused that authority when they repeatedly purchased securities in client accounts that generated undisclosed mark-ups and fees for themselves – on top of the advisory fees that these clients already paid Westport to manage their investments. All told, Westport’s advisory client accounts incurred undisclosed mark-ups and fees of approximately $780,000 and market losses (on risky and sometimes unsuitable investments) in excess of $1 million.


     MARK-UPS ON PROP TRADES.    From March 2012 until June 2015, Westport and McClure received undisclosed mark-ups when Westport, acting as principal, sold securities from its proprietary brokerage account to client accounts.


Federal law requires RIAs to obtain client consent - prior to the completion of each transaction - when selling securities from an adviser’s own account to a client. To enable clients to provide informed consent, Westport was required to provide clients with sufficient information for clients to make an informed decision. Westport was thus required - but failed - to disclose its financial conflict of interest to clients. Clients were deprived of key information they needed to evaluate Westport’s and McClure’s financial motives in buying these risky securities in their accounts.


     MUTUAL FUND PURCHASES.    Further, in its capacity as a broker-dealer, Westport accepted mutual fund distribution fees – i.e., 12b-1 fees - when Westport and McClure invested advisory clients in certain mutual fund share classes. Westport and McClure did not tell their advisory clients that the clients’ mutual fund investments generated this additional form of compensation for Westport and McClure. In some instances, Westport and McClure invested their clients in mutual fund share classes that charged a 12b-1 fee even when a share class of the same fund was available without a 12b-1 fee.


The SEC seeks disgorgement of ill-gotten monetary gains plus interest and penalties, among other things.


[Click for further details: SEC Complaint