The US Securities and Exchange Commission has charged Fieldstone Financial Management Group and its principal, Kristofor Behn, both of Foxboro in Massachusetts, with defrauding retail investment advisory clients by failing to disclose conflicts of interest.

The conflicts of interest related to their recommendations to invest in securities issued by affiliates of Oregon-based Aequitas Management. Behn also fraudulently misused approximately $500,000 of one investor’s funds to pay personal expenses.

According to the SEC’s order, between 2014 to early 2016, approximately 40 retail clients of Behn and Fieldstone invested more than $7 million in Aequitas securities, which were the subject of a previous Commission enforcement action. The order says that Behn and Fieldstone failed to tell their clients that Aequitas had provided Fieldstone with a $1½ million loan and access to a $2 million line of credit, both of which had terms that created a significant financial incentive for Behn and Fieldstone to recommend Aequitas securities to their clients.  The order also says that Behn and Fieldstone made misstatements and omitted necessary information in reports that they sent to the SEC and did not tell the truth when they wrote that the repayment terms of the loan from Aequitas were not contingent on Fieldstone clients investing in Aequitas.

In addition, the order finds that Behn and Fieldstone fraudulently induced a client to invest $1 million in Fieldstone. Within days of Fieldstone receiving the $1 million, Behn used about $500,000 to pay his personal taxes and make other payments to himself or for his personal benefit. In short, he flagrantly disregarded his most basic duties as an investment advisor by concealing the significant financial incentives that he and his firm would receive by recommending investments in Aequitas.

Fieldstone and Behn have not admitted or denied the SEC’s findings but have consented to the issuance of the order, which finds that they have committed fraud and orders them to pay, on a joint-and-several basis, disgorgement and prejudgment interest of $1,047,971 and a penalty of $275,000, all of which will go to the investors. Behn will also be permanently barred from association with any broker, dealer, investment advisor, municipal securities dealer, municipal advisor, transfer agent, or nationally recognised statistical rating organisation.