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SEC Bars Investment Adviser Charged with Defrauding Retail Investment Advisory Clients

The Securities and Exchange Commission has charged Fieldstone Financial Management Group LLC and its principal Kristofor R. Behn, with defrauding retail investment advisory clients.

The Securities and Exchange Commission has charged Fieldstone Financial Management Group LLC and its principal Kristofor Behn, with defrauding retail investment advisory clients by failing to disclose conflicts of interest related to their recommendations to invest in securities issued by affiliates of Oregon-based Aequitas Management LLC.

Behn is also accused of fraudulently misusing approximately $500,000 of one investor’s funds to pay personal expenses.

According to the SEC’s order, from 2014 to early 2016, approximately 40 retail clients of Behn and Fieldstone invested more than $7 million in Aequitas securities, which were the subject of a previous SEC enforcement action.

In March 2016, Aequitas and three executives were charged with hiding the rapidly deteriorating financial condition of its enterprise while raising more than $350 million from investors, as reported by The DI Wire.

The SEC alleges that Behn and Fieldstone failed to disclose to their clients that Aequitas had provided Fieldstone with a $1.5 million loan and access to a $2 million line of credit, both of which had terms that created a significant financial incentive for Behn and Fieldstone to recommend Aequitas securities to their clients.

The SEC’s order also states that Behn and Fieldstone made material misstatements and omissions in reports filed with the SEC, including false representations that the repayment terms of the loan from Aequitas were not contingent on Fieldstone clients investing in Aequitas.

The SEC claims that Behn and Fieldstone fraudulently induced a client to invest $1 million in Fieldstone, and within days of receiving the $1 million, Behn used approximately $500,000 to pay his personal taxes and make other payments to himself or for his personal benefit.

“Behn flagrantly disregarded his most basic duties as an investment adviser by concealing the significant financial incentives he and his firm would receive by recommending investments in Aequitas,” said Erin Schneider, director of the SEC’s San Francisco regional office.  “The Commission is committed to rooting out breaches of fiduciary duty to retail investors.”

Without admitting or denying the Commission’s findings, Fieldstone and Behn consented to the issuance of the order, which finds that they violated the antifraud provisions of the federal securities laws, censures Fieldstone, and orders them to cease and desist from future violations.

Fieldstone and Behn were ordered to pay disgorgement and prejudgment interest of $1.05 million and a penalty of $275,000, all of which will be distributed to harmed investors.

Behn will also be permanently barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.

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