SEC Charges Investment Adviser with Failing to Disclose Financial Conflicts of Interest
Litigation Release No. 25334 / February 24, 2022
Securities and Exchange Commission v. Arthur S. Hoffman, No. 2:22-cv-00296 (C.D. Cal. filed February 24, 2022)
The Securities and Exchange Commission announced today it charged Arthur S. Hoffman with fraud arising from recommendations he made to clients while working as an investment adviser representative of Ameriprise Financial Services.
The SEC's complaint, filed February 24, 2022, alleges that, from May 2019 to December 2019, Hoffman recommended investments in securities issued by Zima Global Ventures, LLC, which purported to use investor funds to trade cryptocurrencies and other digital assets for profit. According to the complaint, Hoffman recommended Zima's securities to clients without disclosing conflicts of interest - in particular, that Zima had agreed to lend Hoffman up to $1.5 million at two-percent interest per year for soliciting investors, and that, in most cases, Hoffman already owed Zima tens of thousands of dollars under that agreement. The SEC further alleges that at least one client asked Hoffman about his compensation from Zima, and Hoffman represented that his association with Ameriprise limited him to a one percent commission. The complaint alleges that, in fact, Hoffman was prohibited by Ameriprise from recommending the investments to clients, and his true compensation totaled more than $170,000 in low-interest loans from Zima, which was more than 25% of the total amount invested by his clients. The SEC alleges that Hoffman also took steps to conceal his conduct from Ameriprise, including by using a non-Ameriprise email address to communicate with clients about Zima's securities, which allegedly violated Ameriprise's policies and procedures, and by persuading two clients not to tell Ameriprise that Hoffman recommended Zima's securities to them when Ameriprise contacted the clients about their investments. Per the complaint, eight of Hoffman's clients invested a total of more than $640,000 in Zima's securities based on his recommendations. The complaint alleges that Zima collapsed in January 2020 when its principals were arrested and charged by the federal criminal authorities with conspiracy to commit wire fraud and money laundering, leaving six of Hoffman's clients with total losses of more than $610,000.
The SEC's complaint charges Hoffman with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, 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. Without admitting or denying the allegations of the SEC's complaint, Hoffman consented to the entry of a judgment imposing a permanent injunction, which is subject to court approval. The complaint also seeks the return of ill-gotten gains plus prejudgment interest and civil penalties to be determined by the court upon a motion filed by the SEC.
The SEC's investigation was conducted by Lance Jasper and supervised by Spencer Bendell of the Los Angeles Regional Office. The SEC's litigation will be led by Dan O. Blau and supervised by Amy J. Longo. The SEC acknowledges the assistance of the U.S. Attorney's Office for the District of Arizona and the U.S. Secret Service, Phoenix Field Office.