The US Securities and Exchange Commission (SEC) has indicted Stephen Anderson for defrauding his clients by overcharging advisory fees.
Anderson owned and operated an investment advisory firm called River Source Wealth Management based in North Carolina, which has since gone bust.
The company’s main source of revenue was advisory fees, which were calculated according to the customer’s assets under management.
However, Anderson overcharged his clients by at least $367,000 (£290,410; € 328,978), amounting to some 40% more than the maximum advisory fees agreed with his clients.
Faking business split
Anderson’s reason for over-billing his clients between 2015 and 2016 was that he had separated from River Source’s asset custodian, prompting him to transfer client assets.
However, the SEC found that the business relationship with the asset custodian ended only after the irregular practices were discovered.
Additionally, the fraudster falsified documentation submitted to the SEC that overstated the firm’s assets under management.
He declared that, in 2015, River Source had $35m (18%) more than it actually did. Similarly, in 2016, he claimed $61m (35%) over the effective asset value.
Ban and restrictions
Following the investigation, the SEC charged Anderson with fraud.
The order “prohibits Anderson from acting in a supervisory or compliance capacity or from charging advisory fees without supervision for at least three years, and requires Anderson to provide notice of the SEC order to clients and prospective clients”.
Carolyn Welshhans, associate director at the SEC’s enforcement division, said: “When advisers breach their duty to clients by misleading and overcharging them, they can expect the SEC will craft a package of remedies that will compensate harmed investors, provide additional safeguards for prospective investors, and deter similar conduct.”
On top of all this, Anderson agreed to pay a disgorgement and prejudgement interest of $405,381, as well as a $100,000 penalty.
The SEC said that Anderson’s payments will be distributed to the overcharged investors through a Fair Fund.
