SEC Charges Investment Advisor for Improper Transactions Costs
The Securities and Exchange Commission has charged investment advisor McDermott Investments Advisors, LLC (MIA) and Dean Patrick McDermott with defrauding clients by charging improper transaction costs.
The Securities and Exchange Commission has charged McDermott Investment Advisors, LLC (MIA), a Fort Meyers, FL investment advisory firm, and Dean Patrick McDermott, the principal and sole owner of the firm, with defrauding clients by charging improper transaction costs.
The SEC’s litigation release alleges MIA and McDermott unlawfully invested clients’ funds in a version of unit investment trusts (UIT) that carried significant transactional sales charges when another version of the same UITs was equally available without those costs.
Apparently, when MIA and McDermott could choose between a “fee-based version,” available to advisory clients who paid a periodic advisory fee for advisory services and a “standard” version for retail broker-dealer clients that were not in an advisory program and paid for their investing services on a transaction-by-transaction basis, they often selected the more expensive, standard version of various UTIs. This caused its advisory clients to pay unnecessary “transactional sales charges” to MIA’s affiliated broker-dealer, McDermott Investment Services, LLC (MIS) without making appropriate disclosures.
What’s more, the SEC’s complaint alleges that McDermott and other investment adviser representatives who made those purchases were also registered representatives of MIS and, subsequently, reaped the benefits of the transactional sales charges that were generated.
As a result, the complaint asserts that MIA and McDermott violated their duties to seek best execution and to disclose all material conflicts of interest.
The SEC’s complaint charges MIA and McDermott with directly and indirectly violating the antifraud provisions of Section 206(I) and 206(2) of the Investment Advisers Act of 1940, names MIS as a relief defendant, and seeks a permanent injunction, joint and several disgorgement and prejudgment interest, civil monetary penalties and any further relief the court deems just and proper.
