U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23066 / August 13, 2014
Securities and Exchange Commission v. Sage Advisory Group, LLC and Benjamin Lee Grant, Civil Action No. 1: 10-cv-11665 (D. Mass. September 29, 2010)
Jury Returns Verdict Against Massachusetts Investment Adviser in SEC Fraud Case
The Securities and Exchange Commission announced that, on August 13, 2014, a federal court jury in Boston, Massachusetts, returned a verdict against registered investment adviser Sage Advisory Group, LLC, and its principal, Benjamin Lee Grant, both of Boston, MA, in a fraud case filed by the SEC.
In its complaint, filed on September 29, 2010, the Commission alleged that starting on or about October 4, 2005, Grant engaged in a scheme to induce his former brokerage customers to transfer their assets to Sage, his new advisory firm.
The Commission's complaint further alleged that prior to October 2005, Grant was a registered representative of broker-dealer Wedbush Morgan Securities and had customer accounts representing approximately $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. In a letter dated October 4, 2005, Grant told his former Wedbush customers that, at the suggestion of First Wilshire, their accounts were being moved from Wedbush to a discount broker and that Sage had been formed to handle their investments. The complaint alleged 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 the discount broker and sign up with Sage.
The Commission contended that these statements were materially false and misleading because First Wilshire had not required a transfer from Wedbush, had not refused to continue managing the customers' assets at Wedbush, and had not authorized Grant's statements. Moreover, Grant's wrap fee statements were without factual basis. The complaint further alleged 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.
After a trial that began on August 4, 2014, the jury deliberated for approximately two hours before rendering its verdict of liability against both defendants under Sections 204A and 206(1), (2), and (4) of the Investment Advisers Act of 1940 and Rules 204A-1 and 206(4)-7 thereunder. The Court will later determine whether and what relief to impose against the defendants. The case was tried by Marc Jones and J.R. Drabick, with assistance from Stephanie DeSisto and Frank Huntington, of the Commission's Boston Regional Office.
For further information, see Litigation Release No. 21672 (September 29, 2010).
On September 1, 2011, the Commission filed a separate civil injunctive action against Sage, Benjamin Lee Grant, and his father Jack Grant alleging that Jack Grant, a lawyer and former stockbroker, had violated a Commission bar from association with investment advisers by associating with his son Benjamin Lee Grant's investment advisory firm, Sage, and by acting as an investment adviser himself. The Complaint further alleged that Jack Grant, Benjamin Lee Grant and Sage fraudulently failed to disclose Jack Grant's barred status and disciplinary history to Sage's advisory clients. On May 30, 2013, Jack Grant consented to settle the charges, but the action against Sage and Lee Grant is still pending and a trial date is to be determined. For further information, see Litigation Release No. 22081 (September 1, 2011) (SEC Charges Massachusetts-Based Attorney for Violating an Investment Adviser Bar and his Son for Failing to Disclose his Father's Bar to Advisory Clients); and Litigation Release No. 22708 (May 30, 2013) (SEC Obtains Final Judgment and Issues Administrative Orders against John A. ("Jack") Grant).