SEC Charges Investment Advisers with Failing to Disclose Conflict of Interest
Sept. 24, 2019
File No. 3-19498
September 24, 2019 - The Securities and Exchange Commission today announced settled charges against Wellesley, Massachusetts investment adviser Strategic Planning Group, Inc. (“SPG”) and its two principals, David A. Rourke and Jarrod A. Sherman, for failing to adequately disclose conflicts of interest.
According to the SEC's order, beginning in approximately August 2016, Rourke and Sherman, invested SPG clients’ funds, over which SPG had discretionary authority, in the publicly-traded stock of Ecoark Holdings, Inc. (“Ecoark”). The order finds that Rourke and Sherman had been contractually retained by Ecoark for three years beginning in May 2013 to provide consulting services to Ecoark in exchange for each receiving 100,000 shares (later split-adjusted to 50,000 shares) of Ecoark common stock. In addition, Rourke and Sherman also personally invested in Ecoark, purchasing stock both when Ecoark was a private company and after it became publicly-traded in April 2016. The order finds that SPG, Rourke, and Sherman failed to disclose to investors their connections to Ecoark and their holdings in Ecoark stock, including that they had received some of those shares as compensation for providing consulting services. As a result, SPG, Rourke, and Sherman breached their fiduciary duties to SPG’s clients by failing to disclose the resulting inherent conflict of interest under which they had a potential incentive to invest SPG clients’ funds in Ecoark to support or increase Ecoark’s stock price.
The SEC order finds that SPG, Rourke, and Sherman willfully violated the antifraud provisions of Section 206(2) of the Investment Advisers Act of 1940. Without admitting or denying the SEC's findings, SPG, Rourke, and Sherman agreed to settle by consenting to a cease-and-desist order and censure, civil penalties of $200,000 for SPG and $75,000 each for Rourke and Sherman, and an undertaking requiring them to distribute the order to each of SPG’s existing or former clients for whose account SPG purchased Ecoark publicly-traded stock. Thereafter, they are required to provide a copy of the order to any existing or new client before SPG purchases Ecoark stock for any such client’s account.
The SEC's investigation was conducted by David H. London, Mark Albers, and Michele T. Perillo of the Boston Regional Office. The investigation followed an examination conducted by Philip P. St. Pierre, Joshua Grinspoon, Daniel B. Wong, and Philmore S. Beazer of the Boston Regional Office. The SEC appreciates the assistance of the Securities Division of the Secretary of the Commonwealth of Massachusetts and the Financial Industry Regulatory Authority.