By Cyril Tuohy
The Securities and Exchange Commission (SEC) has announced fraud charges against two Tampa, Fla.-area retail financial advisors who reaped more than $4 million by investing the assets of retirees and self-directed individual retirement account (IRA) holders with risky offshore hedge funds.
Larry C. Grossman, of Tarpon Springs, founder of Sovereign Asset Management and principal manager of Sovereign International Pension Services, an IRA administrator, was named in the complaint along with Gregory L. Adams, of Palm Harbor.
Adams, a former owner of Sovereign Asset Management, manages Sovereign Private Wealth, and is managing director of Weybridge Capital, and advisor to the Sheffield funds family registered in the British Virgin Islands. He filed for Chapter 7 bankruptcy in May.
Eric I. Bustillo, director of the SEC’s Miami Regional Office, said in a news release that the advisors had fallen short of their responsibility to disclose their connections to offshore funds to which Grossman and Adams steered clients.
SEC investigators said Grossman received $3.3 million and Adams received $1 million for steering clients to the offshore funds run by Nikolai Simon Battoo, who was also charged by the SEC last year for exposing clients to excessive risk.
“Adams and Grossman breached this duty when they misstated their compensation and filed to disclose conflicts of interest,” the SEC said, and the two advisors “failed to investigate – and in some case wholly disregard – numerous red flags surrounding Battoo and his funds.”
Separate messages left with Grossman and Adams at their respective Florida offices were not returned.
The home page of the Sovereign International Pension Services website and several blog postings under Grossman’s name at www.offshoreira.com promote the benefits of investing in retirement accounts offshore.
SEC investigators allege Grossman and Adams “aided and abetted” violations of U.S. securities industry custody rules when pooling clients’ money and investing it offshore with Battoo, who fell victim to the massive Ponzi scheme perpetrated by Bernard L. Madoff.
“Sovereign failed to comply with the custody rule, which requires an investment advisor to comply with surprise examinations or certain other procedures to verify and safeguard client assets,” the SEC also said.
Grossman and Adams, both 58, are in violation of the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940 and the Investment Company Act of 1940, the SEC also said.
The two advisors have 20 days to file a response.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
© Entire contents copyright 2013 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.