SEC Charges Two Boston-Based Investment Advisers with Fraud
Litigation Release No. 24037/ January 31, 2018
Securities and Exchange Commission v. James S. Polese, et al., Civil Action No. 18-cv-10186 (D. Mass., filed January 31, 2018)
The Securities and Exchange Commission ("Commission") filed an enforcement action on January 31, 2018, in federal court in Boston, Massachusetts, charging two Boston-area investment advisers with defrauding multiple clients by stealing nearly half a million dollars of client assets, along with other breaches of their fiduciary duty. In a parallel action, the U.S. Attorney's Office for the District of Massachusetts announced criminal charges against Polese and Peterson.
According to the Commission's complaint, beginning in 2014, James S. Polese and Cornelius Peterson, while employed as investment advisers at a large financial institution, engaged in various schemes to defraud their clients, including stealing nearly $450,000 from one elderly client. In March 2016, Polese and Peterson fraudulently misappropriated $350,000 of their client's money, using $100,000 of those funds to make investments in their own names, and directing the remaining $250,000 to Polese's personal bank account. Then, from March through May of 2017, Polese made numerous unauthorized withdrawals from the same client's account totaling approximately $93,000 to pay Polese's credit card and college tuition expenses for Polese's children.
In addition to stealing client funds, the complaint alleges that Polese and Peterson breached their fiduciary duty to their clients when they (1) secretly put client funds at risk by using a client's assets as collateral to secure loan financing for a private entity in which Polese and Peterson were investors, and (2) invested client funds into an investment in which defendants held a financial interest, without informing the client or disclosing their conflict of interest. Additionally, Polese defrauded two clients through violations of his fiduciary duties to those clients including (1) obtaining a loan from a client on unfavorable terms to the client; and (2) charging a client advisory fees 50% higher than the rate he repeatedly promised to charge her.
The Commission's complaint alleges that Polese and Peterson violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also alleges that Polese and Peterson violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act") and that they aided and abetted violations of Section 204 of the Advisers Act and Rule 204-2 thereunder. The Commission's complaint seeks permanent injunctions, civil penalties, and disgorgement plus prejudgment interest against Polese and Peterson.
The Commission's investigation was conducted by Andrew H. Feller, Eric M. Brooks, and Kevin B. Currid of the Boston Regional Office. The Commission's litigation will be led by Martin F. Healey. The Commission appreciates the assistance of the U.S. Attorney's Office for the District of Massachusetts and the FBI.