Chicago-based Stoltmann Law Offices is investigating claims made by the Securities and Exchange Commission that financial advisor Scott Fries of Piqua, Ohio engaged in a Ponzi-like scheme , defrauding investors of nearly $200,000. According to the complaint filed by the SEC last week, Fries raised approximately $178,000 from investors and used that money to pay personal expenses like his mortgage, payday loans, and credit cards. The SEC further alleges that Fries attempted to fraudulently conceal his activities by creating fake account statements which he delivered to his clients that purported to show their money invested in legitimate investments. The SEC alleges Fries’ misconduct violated several federal securities laws including Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), and Rule 10b-5 thereunder, 17 C.F.R. 240.10b-5, Section 17(a) of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. § 77q(a), and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (“Advisers Act”), 15 U.S.C. §§ 80b-6(1) and 80b-6(2).
Before the SEC took action, the Financial Industry Regulatory Authority (FINRA) barred Fries from the securities industry in November 2019 for violating FINRA Rule 8210. In response to being terminated for cause by his broker/dealer firm TransAmerica, FINRA launched an investigation into the allegations which led to Fries’ termination. If a broker/advisor fails to respond to these requests for information under FINRA Rule 8210, they can be barred for life from the securities industry. In many instances, brokers refuse to answer Rule 8210 requests because doing so would put them in the untenable position of having to answer question under oath. It is likely, given the SEC’s allegations, that Fries chose not to answer FINRA Rule 8210 requests because it was not in his best interest for their to be a record of whatever this scheme actually was.
Investors who were caught up in this scheme run by Fries have legal options to attempt to recover their losses. First and foremost, at all times relevant, Fries was a registered, licensed, representative of TransAmerica. This means victims – even those that were not contractual customers of TransAmerica – can file an arbitration action against TransAmerica to seek recovery of their losses. As a FINRA registered broker/dealer firm, TransAmerica is legally obligated to supervise the conduct of its financial advisors. This supervision requirement is rooted in the Securities Act and all applicable state laws, including myriad FINRA Rules and regulations, including FINRA Rule 3110. Case law also supports the proposition that even non-customers of the firm can sue for the firm’s role in facilitating or failing to supervise their advisors. See McGraw v. Wachovia Securities, 756 F. Supp. 2d 1053 (N.D. Iowa 2010). When “red flags”of misconduct present themselves, firms like TransAmerica have a duty to act and to take steps to protect investors.