New York Securities Lawyer Blog
On August 22, 2017, the Securities and Exchange Commission (“SEC”) charged Jeremy Drake (“Drake”), a former financial advisor of HCR Wealth Advisors (“HCR”), with defrauding two clients – a professional athlete and his wife—of more than $1.2 million in undisclosed fees from their accounts. The SEC is seeking a return of the ill-gotten monies, plus interest and disgorgement penalties, and is additionally seeking an injunction against Drakes’ future activities in the capital markets. The SEC Complaint (the “Complaint”) found that Drake’s actions constituted a violation of Sections 206(1) and 206(2) of the Advisers Act, 15 U.S.C. §§ 80b-6(1) & 80b-6(2), or, alternatively, the aiding and abetting of HCR’s uncharged violations of those same provisions.
Drake deceived his clients as to his fee structure, by misrepresenting that they had been given a special discounted rate of 0.2% due to their high net worth and status, when in fact they were charged a 1% fee. Drake personally received $900,000 of these fees, through his performance based compensation. Drake’s clients, who were victim to this fraud, were led to believe they had paid only $300,000 in fees, rather than $1.2 million.
Drake worked as a registered investment advisor for HCR from 2009 through July 2016, until he was terminated for misconduct regarding fraudulent fee misrepresentation. Drake personally managed over $50 million dollars for approximately 20 clients. HCR itself has over $900 million in assets under management, with approximately 500 clients in its book. The Complaint’s findings of Drake’s misconduct at HCR should caution investors to look closely at their asset holdings, and insure they are not being charged excessive fees. Compliance screening procedures at HCR may be inadequate at properly protecting investors from predatory sales practice abuses.
HCR maintains its clients’ accounts at Charles Schwab & Co., Inc. (“Schwab”). Schwab serves as the custodian for HCR’s clients’ securities and HCR trades on behalf of its clients through Schwab. As a result, HCR clients typically have one or more accounts at Schwab, managed by HCR, with HCR financial advisors directing the trading activity. However, Schwab clears and executes the trades, pursuant to their custodian agreements.
During the course of hiding his fraud, Drake emailed doctored account statements and commission reports to his clients. While simultaneously defrauding his clients by extracting excess commission fees and altering client files to conceal this behavior, Drake negotiated aggressively with HCR to alter his compensation package to increase his cut of commission based fees. According to the Complaint, Drake went so far as to adopt a fake persona called “Ron Stenson,” who he represented to clients as an independent accountant disputing their claims of excess fees.
The attorneys at Lax & Neville LLP have extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses as a result of sales practice abuses, such as churning and investment and securities fraud. If you are a victim of fraud, please contact Lax & Neville LLP today at (212) 696-1999 to schedule a consultation.