SEC Announces Settlement in Fraud Case Against Former Investment Adviser

Lit. Release No. 24408 / February 22, 2019

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 announced today the entry of a final judgment against James S. Polese, a former investment adviser at a large financial institution who was charged with misappropriating client funds.

On January 31, 2018, the Commission filed a complaint in the United States District Court for the District of Massachusetts charging Polese and his former colleague, Cornelius Peterson, with securities fraud for engaging in various schemes to defraud their clients, including fraudulently misappropriating $350,000 of one 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. The Commission's complaint also alleged that Polese and Peterson invested $100,000 of another client's funds into an investment in which Peterson and Polese held a financial interest, without informing the client or disclosing their conflict of interest.

The Court has now entered a final judgment against Polese based upon his consent to resolve all claims. Polese agreed to disgorge $307,300 in ill-gotten gains and pay prejudgment interest of $35,276. In addition to ordering this monetary relief, the final judgment enjoins Polese from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, as well as aiding and abetting any investment adviser's violations of the books and records provisions of Section 204 of the Investment Advisers Act and Rule 204-2 thereunder. The monetary judgment will be deemed satisfied by the $355,000 of restitution that Polese was ordered to pay in connection with a parallel criminal action brought by the U.S. Attorney's Office for the District of Massachusetts, in which Polese pleaded guilty to conspiracy, securities fraud, aggravated identity theft, and bank fraud, and was also sentenced to sixty months imprisonment. The Commission has also entered an order barring Polese from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock.

For further information, see Lit. Releases Nos. 24037 (January 31, 2018) and 24356 (November 16, 2018).