U. S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21672 / September 29, 2010
Securities and Exchange Commission v. Sage Advisory Group, LLC and Benjamin Lee Grant 10-CA-11665 (D. Mass. September 29, 2010)
SEC CHARGES MASSACHUSETTS-BASED INVESTMENT ADVISER WITH FRAUD
The Securities and Exchange Commission announced that it filed a civil injunctive action today in federal district court in Massachusetts against Sage Advisory Group, LLC, an investment adviser registered with the Commission and its sole principal, owner, and employee Benjamin Lee Grant. The Commission’s complaint alleges that starting on or about October 4 2005, Grant, a resident of Boston, Massachusetts, made material misrepresentations and omissions to his former brokerage customers in order to induce them to transfer their assets to Sage, his new advisory firm.
The Commission’s complaint alleges that prior to October 2005, Grant was a registered representative of broker-dealer Wedbush Morgan Securities and had more than 300 customer accounts, representing more than $100 million in assets, virtually all of which were managed by California-based investment adviser First Wilshire Securities Management. According to the complaint, Grant resigned from Wedbush on September 30, 2005 so that he could operate Sage, his own investment advisory firm. The complaint alleges that, in a letter dated October 4, 2005, Grant told his Wedbush customers that Sage had been formed to handle their investments and that, at the suggestion of First Wilshire, their accounts were being moved from Wedbush to a discount broker. The complaint alleges that the letter told Grant’s customers that the charge for their accounts was changing from a 1% management fee paid to First Wilshire plus Wedbush’s brokerage commissions to a 2% “wrap fee” paid to Sage, and that First Wilshire had indicated that the wrap fee had been historically less expensive than the previous arrangement. According to the complaint, the letter also told Grant’s customers that if they wanted to avoid any disruption in First Wilshire’s management of their assets, they had to sign and return the new advisory and custodial account documents as soon as possible. According to the complaint, in subsequent communication with customers, Grant told them that First Wilshire was no longer willing to manage their assets at Wedbush and that they had to transfer to Sage.
According to the Complaint, however, these statements were materially false and misleading because First Wilshire had not suggested a transfer from Wedbush and had not refused to manage assets at Wedbush. Moreover, according to the complaint, Grant knew that the wrap fee would not be less expensive than the previous arrangement. The complaint further alleges that Grant failed to disclose that the switch from Wedbush to the discount broker would result in significant savings that would flow to Grant and Sage rather than to the advisory clients and that, as a result, Grant and Sage’s compensation would be substantially increased. Indeed, once Grant’s customers transferred their accounts from Wedbush to Sage, Grant more than doubled his own compensation.
The Commission’s complaint alleges that Sage and Grant violated Sections 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 204A, 206, 207 of the Investment Advisers Act of 1940 and Rules 204A-1 and 206(4)-7 thereunder. The Commission seeks the entry of a permanent injunction, disgorgement of ill-gotten gains plus pre-judgment interest, and the imposition of civil monetary penalties against Sage and Grant.
The SEC acknowledges the assistance of Secretary of the Commonwealth of Massachusetts William F. Galvin and the Massachusetts Securities Division in its investigation.
See Also: SEC Complaint