When investment advisers and brokers misrepresent the value of the account to a client it is frequently because something untoward has occurred – huge trading losses, misappropriation or other malfeasance. The Commission’s most recent case in this area however has none of that. Rather, the complaint centers on claims that the adviser repeatedly misrepresented the amount in retirement accounts. Those account were declining significantly in value. No reason is given. An earlier FINRA proceeding did find that the adviser had engaged in unsuitable and excessive trading. SEC v. Cody, Civil Action No. 1:16-cv-12510 (D. Mass. Filed December 12, 2016).
Richard Cody is an investment adviser and a former broker representative. In 2009 he formed Boston Investment Partners, LLC. By the end of 2015 he had about 100 advisory accounts with over $14 million in assets under management.
From 2004 to the present Mr. Cody is alleged to have made misrepresentations to three clients regarding the value of their retirement accounts. During the period the value of the three accounts declined substantially. Mr. Cody did not tell the three clients that fact however. To the contrary, Mr. Cody continually told the clients that their accounts were fine.
To continue the ruse, Mr. Cody had to conceal the true value of the accounts from the clients. To do this he at times falsely represented that withdrawals could not be made because the funds were invested in an annuity which prevented a withdrawal. When insufficient funds were available for a withdrawal he wired money into the client bank account from other sources to conceal the diminished value of the investment account. He also furnished the clients with tax filings that contained false values while continuing to misrepresent the true value of the accounts.
In 2008 FINRA brought an action against Mr. Cody. It alleged that he engaged in unsuitable and excessive trades. That action went to hearing. Ultimately Mr. Cody was suspended in a decision upheld on appeal.
The Commission’s complaint does not specify the reason the three accounts declined in value, only that Mr. Cody concealed that fact. The complaint alleges violations of Exchange Act Section 10(b) and Advisers Act Sections 206(1) and 206(2). The action is pending. See Lit. Rel. No. 23702 (December 13, 2016).