The SEC brought an enforcement action against Bennett Group Financial Services, LLC (Bennett Group), a firm based in Maryland, and Dawn J. Bennett, the firm’s CEO, for grossly inflating the amount of managed assets and exaggerating the investment returns actually obtained for clients. Bennett Group employees were registered representatives associated with Western International Securities, Inc., a broker-dealer registered with the SEC.
The SEC alleged that Bennett frequently touted to clients and more broadly on her paid radio program that highly profitable investment returns generated by Bennett Group placed it in the top one percent of firms worldwide without disclosing that the returns were calculated for a model portfolio and not based on actual investor performance. The SEC stated that Bennett and Bennett Group failed to adopt and to implement adequate written policies and procedures related to the calculation and advertisement of assets managed and of investment returns.
The SEC further found that Bennett and her firm claimed to be managing more than $2 billion in assets when the real number was no more than one-fifth of that amount. According to the SEC, Bennett and Bennett Group never provided any form of management for assets in excess of approximately $407 million.
From 2009 through 2011, the SEC stated that Bennett and Bennett Group made three submissions to Barron’s magazine for its rankings of independent financial advisors. In these submissions to Barron’s, Bennett and Bennett Group falsely claimed that they managed assets of between $1.1 billion and $1.8 billion. Barron’s used these submissions when compiling and publishing various rankings of financial advisors. As a result of the submissions, Barron’s:
- ranked Bennett fifth in the category of “Top 100 Women Financial Advisors” in its June 9, 2009, issue (based on purported managed assets of $1.1 billion);
- ranked Bennett twenty-sixth in the category entitled “Top 100 Independent Financial Advisors” in its August 9, 2009, issue (based on purported managed assets of $1.3 billion); and
- ranked Bennett second in its listing of the “2011 Top Advisors” in Washington, D.C. (based on purported managed assets of $1.8 billion).
According to the SEC, Bennett and her firm made additional false statements to Barron’s, which, in turn, were published by the magazine. In 2011, Bennett and her firm claimed that the typical size of a Bennett Group account was $3 million. In reality, at the time, only 1% of Bennett Group customers and clients had account values of $3 million or more. Bennett and her firm also falsely claimed in 2011 that the firm’s minimum account size was $2 million. In fact, at the time, 98% of customer and client accounts were under that threshold.
After publication in Barron’s, the SEC stated that Bennett and Bennett Group promoted their Barron’s rankings and repeated the misrepresentations contained in the Barron’s publications through e-mail, the firm’s Web site, social media, article reprints, and other means to existing and prospective customers and clients.
In once case, the SEC found that Bennett directed firm employees to send marketing e-mails to current and prospective customers and clients touting her ranking as “#4 on Barron’s list of ‘Top 100 Women Financial Advisors’” and claiming that she and the firm had “assets under management of $1.5 billion.”
In another case, the Bennett Group on or about June 26, 2010, ordered 1,125 copies of the Barron’s issue ranking Bennett as fifth in its “Top 100 Women Financial Advisors.” Bennett Group then sent at least 125 copies of the Barron’s article to existing and prospective customers and clients.
Bennett and her firm asserted that the claims of approximately $2 billion of assets managed were defensible because she provided uncompensated short-term cash management advice to three corporate clients, “Company A,” “Company B,” and “Company C.” The SEC, however, found Bennett’s and Bennett Group’s claims regarding short-term cash management advice for Company A, Company B, and Company C were entirely fictitious. Individuals at Companies A, B, and C (including, in certain instances, ones identified by Bennett) either did not know her or her firm, did not communicate with them regarding short-term cash management, were not at the respective company at the time, or were incapacitated or dead. Further, as to certain documents that Bennett claimed supported her assets under management, when asked to produce for inspection the originals thereof, Bennett and Bennett Group were unable to do so, claiming that they were “lost” in an office move after the inception of the staff’s investigation.
As a result of the conduct, the SEC found that Bennett and Bennett Group:
- willfully violated Sections 206(1) and 206(2) of the Advisers Act, which prohibit fraudulent conduct by an investment adviser;
- willfully aided and abetted and caused the violations of, Section 206(4) of the Advisers Act and Rule 206(4)–1(a)(5) thereunder, which make it unlawful for an investment adviser to, directly or indirectly, publish, circulate, or distribute any advertisement, which contains any untrue statement of a material fact or which is otherwise false or misleading; and
- willfully aided and abetted and caused the violations of, Section 206(4) of the Advisers Act and Rule 206(4)–7 thereunder, which require an investment adviser to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules promulgated thereunder.
Click https://www.sec.gov/litigation/admin/2015/33-9910.pdf to access the enforcement action.