The Securities and Exchange Commission has charged Brenda Smith, a Pennsylvania investment adviser, with operating a $105 million fraud. The SEC also obtained an emergency asset freeze.
The SEC’s complaint alleges that Smith and her fund, Broad Reach Capital LP, raised approximately $105 million from approximately 40 investors by representing that she would invest their money in publicly traded securities through various trading strategies that she championed as providing consistent high returns.
However, regulators claim Smith made very few investments in these trading strategies, and instead largely used investors’ money to repay other investors and for her own personal investments. The SEC said that investors are still owed more than $63 million in principal.
Smith and the entities she controlled allegedly disseminated false statements touting positive returns and most recently fabricated documents in an attempt to inflate Broad Reach’s assets and lull her investors into believing their capital is safe, the complaint said.
“An investment adviser serves in a position of trust and has a fiduciary duty to speak truthfully to clients,” said G. Jeffrey Boujoukos, regional director of the SEC’s Philadelphia regional office. “We allege that Ms. Smith breached her clients’ trust by misleading investors with false claims of how she invested their money and how those investments performed.”
Until recently, Smith owned CV Brokerage Inc., a registered broker-dealer, and held FINRA Series 7, 24, 27, 53, 63, 79, and 99 licenses. On July 2, 2019, FINRA accepted a letter of acceptance, waiver, and consent where Smith agreed to be barred in light of her failure to respond to a written request for documents and information.
The complaint was filed in federal court in Newark, New Jersey and charges Smith and the entities she controlled with violating the anti-fraud provisions of the federal securities laws. The court granted the SEC’s request for an asset freeze and temporary restraining order.
The SEC is seeking disgorgement of ill-gotten gains and prejudgment interest, and civil penalties against the defendants.