SEC Charges Investment Adviser With Fraud

The Securities and Exchange Commission today charged investment adviser Stephen Brandon Anderson with defrauding clients by overcharging advisory fees of at least $367,000.

According to the SEC’s order, Anderson owned and operated River Source Wealth Management, LLC, a now-defunct registered investment adviser in North Carolina.  River Source’s primary revenue stream was customer advisory fees.  Customer agreements provided that those fees would be based on each customer’s assets under management.  The SEC’s order finds, however, that in 2015 and 2016, Anderson overcharged a majority of his clients.  The amount and percentages of the overcharges varied but, in the aggregate, amounted to approximately 40% more than the agreed-upon maximum customer advisory fees.  As described in the order, Anderson also misled his clients about the reason he transferred their assets from River Source’s long-time asset custodian, falsely stating that it was his decision and that the separation was “amicable.”  In fact, as the order finds, the asset custodian ended the relationship with River Source after it noticed irregular billing practices and failed to receive sufficient supporting documentation from Anderson.  Furthermore, the order finds that Anderson made material misstatements in reports filed with the Commission, including overstating River Source’s assets under management by at least $34 million (18%) in 2015 and $61 million (35%) in 2016, and failed to implement required compliance policies and procedures.  The order prohibits Anderson from acting in a supervisory or compliance capacity or from charging advisory fees without supervision for at least three years, and requires Anderson to provide notice of the SEC order to clients and prospective clients.

“When advisors breach their duty to clients by misleading and overcharging them, they can expect the SEC will craft a package of remedies that will compensate harmed investors, provide additional safeguards for prospective investors, and deter similar conduct,” said Carolyn M. Welshhans, Associate Director in SEC’s Enforcement Division.

The SEC’s order finds that Anderson violated Sections 206(2) and 207 of the Investment Advisers Act, and aided and abetted and caused River Source’s violations of the books and records and compliance provisions of the Advisers Act.  In addition to the limitations and undertakings discussed above, Anderson agreed to a cease-and-desist order and a censure, and agreed to pay disgorgement and prejudgment interest of $405,381 and a $100,000 penalty.  Payments made by Anderson pursuant to the order will be distributed to harmed investors through a Fair Fund.  Anderson consented to the order without admitting or denying the findings.    

The SEC’s investigation was conducted by Brian Vann and Daniel A. Weinstein with assistance from James Smith, Samara Ross and Jonathan Swankie, and the case was supervised by Brian O. Quinn and Ms. Welshhans.