Orleans Investment Advisor Accused In Scheme To Overcharge Clients
Dec. 20--BOSTON -- The secretary of state's office filed an administrative complaint against a South Orleans investment adviser Wednesday, seeking to have his registration revoked after he allegedly ran a scheme with a stockbroker to overcharge his clients more than $1 million in trading fees.
The same day that Securities Division enforcement attorney Benjamin Donovan filed the complaint against Francis Weller Jr. and his company, Weller Asset Management,the brokerage company Weller worked with signed a consent order with the office agreeing to pay a $300,000 fine.
Donovan filed the complaint for alleged violations of the Uniform Securities Act.
According to the complaint, Weller worked with broker Timothy Johnson at Stifel, Nicolaus & Co. Inc. to charge clients for services he was being provided for free, failed to notify them of his conflicts of interest with the company and caused them to be charged, collectively, more than $1 million in trading commissions between 2012 and 2017.
The company, which is based in Missouri, has offices in Harwich and Hyannis. Representatives did not respond to a email seeking comment, and Weller did not respond to a voicemail requesting comment.
Johnson, who is referred to as the "registered representative" in the complaint and consent order, earned more than $1.07 million in commissions between 2012 and 2017 from Weller's 27 clients.
Most of the clients were 65 or older and live in Massachusetts, Donovan says in the complaint.
Those commissions were paid for each stock trade, and the majority could have been completed through a discount stockbroker, with costs as low $7.95 per trade, he wrote, although some discount brokers charge even less.
"Full-service commissions ... can range from approximately $84 to $700," Donovan wrote, referring to Stifel, Nicolaus & Co.
Those commission fees exceeded the amount Weller charged clients for his services as their investment adviser, Donovan wrote. Although clients were aware they were paying a 1 percent asset management fee to Weller, they were unaware they also were being charged the full-service commission on the stock trades.
Weller required his clients to open trading accounts with Stifel but failed to disclose that he had a conflict of interest when he was providing investment advice. That included getting tips and advice from Johnson as well as free use of the company's offices, Donovan wrote.
"While Weller's arrangement with Stifel reduced Weller's own overhead costs, it did not benefit Weller's clients," according to a statement from the secretary of state's office.
The complaint asks that a hearing officer revoke Weller's registration as an investment adviser, require him to provide verified accounting of all proceeds that resulted from his alleged wrongdoing, "disgorge" all profits he received from those actions and impose an unspecified fine.
According to the consent order with Stifel, Nicolaus & Co., the company will conduct a review of the 6,012 solicited trades in Weller's clients' accounts and offer them compensation for any trades that were found to be unsuitable.
The company failed to properly supervise Johnson, who was violating its own policies and the law, the order states.
Johnson also signed a separate consent order Wednesday with the Securities Division. Among its conditions, Johnson must do business only out of the branch's Harwich office and notify the division if he is relocated, be on a heightened status of supervision, have his trades verified by a principal and have 10 percent of his accounts audited each of the next three years.
Weller has been registered as an investment adviser since 1994, and Johnson has been registered with the company since 2009.
-- Follow Wheeler Cowperthwaite on Twitter: @WheelerReporter.
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