SEC Charges Trust Company and Individuals for Unregistered Broker-Dealer Activity and the Company and Its CEO for Making Related Material Misrepresentations
Jan. 17, 2023
File No. 3 -21277
January 17, 2023 - The Securities and Exchange Commission today announced settled charges against National Trust and Fiduciary Services Company, Inc. ("NTFS"), a Warrenton, Virginia-based trust company, its founder and Chief Executive Officer, Glen V. Armand, and Robert W. Moreschi, the former managing principal of Eastern Point Securities, Inc. ("EPS"), a formerly registered broker-dealer wholly owned by NTFS, for unregistered broker-dealer activity. The SEC also announced settled charges against NTFS and Armand for related misrepresentations concerning NTFS's business and regulatory oversight.
According to the SEC's order, from at least January 2015 through December 2018, NTFS made it appear as though EPS was accepting and executing the omnibus trading activity of NTFS's trust assets. In reality, NTFS bypassed EPS, in part, by using NTFS's own personnel and systems to place mutual fund orders directly with EPS's clearing firm. As the nominal broker of record, EPS received approximately $953,643 of transaction-based compensation in the form of 12b-1 fees out of which it routed approximately $764,933 to NTFS. Moreschi, EPS's only employee and its managing principal, controlled the timing and payments made by EPS to NTFS. The order also finds that NTFS made material misrepresentations to investors claiming that (i) one trust product did not charge annual fees; (ii) the Commission and the Financial Industry Regulatory Authority regulated its securities operations and (iii) other governmental agencies regulated its business operations. In reality, trust assets at issue incurred 12b-1 fees, all of the securities operations occurred at NTFS, a non-registered entity, and there were no federal or state agencies providing ongoing regulation of NTFS's business operations. Armand drafted, reviewed, and disseminated these material misrepresentations to investors.
The SEC's order finds that NTFS and Armand willfully violated Sections 17(a)(2) and (3) of the Securities Act of 1933, NTFS willfully violated Section 15(a) of the Securities Exchange Act of 1934, and Armand and Moreschi willfully aided and abetted and caused NTFS's violations of Section 15(a) of the Exchange Act. Without admitting or denying the findings in the SEC's order, NTFS, Armand, and Moreschi agreed to settle these charges and to the cease-and-desist order. Armand and Moreschi also agreed to associational and penny stock bars and investment company prohibitions against them with a right to reapply after five years. In addition, NTFS agreed to pay disgorgement of $101,700.25 plus prejudgment interest of $20,099.72, and a civil penalty of $225,000. Armand and Moreschi agreed to pay civil penalties of $75,000 and $40,000, respectively.
The SEC's investigation was conducted by Jordan A. Cortez and Jeffrey Cook and supervised by Eric R. Busto and Glenn Gordon, with the assistance of trial counsel Teresa Verges. The SEC thanks the Financial Industry Regulatory Authority for its assistance in this matter.