The SEC is charging $ 160,000 against the Florida RIA for “improper” charges

The Securities and Exchange Commission (SEC) has charged a Fort Myers, Florida-based RIA and its clients with alleged fraud against advisory clients of $ 160,000 through improper transaction fees.

The agency claims that Pennsylvania-based Dean Patrick McDermott and his RIA, McDermott Investment Advisors, illegally invested their clients in versions of securities that were subject to “substantial transaction sale fees” when identical alternatives were equally available without those costs.

McDermott and its RIA – through an affiliate broker-dealer, McDermott Investment Services, also owned by McDermott – are charged with “double dipping” by receiving both the advisory fees and the fees incurred in selling the more expensive securities, said the SEC. McDermott’s broker-dealer firm is based in Bethlehem, Penn.

The SEC’s complaint alleged that McDermott and its companies “enriched themselves at the expense of their customers and without their customers’ knowledge” by failing to do business as best as possible and by disclosing conflicts of interest that were “inherent” in the transactions.

The SEC seeks permanent disposition, the repayment of improper profits plus interest, and additional civil fines and penalties.

Washington, DC-based attorney Thomas J. McGonigle, who represents McDermott, declined to comment.

McDermott makes the following SEC investigation comment below in its BrokerCheck report:

If necessary, the registered agent will provide both reduced advisory fees through the investment advisor and reduced transaction fees through the broker-dealer. The registered agent believes that he has acted in the best interests of his customers. The registered agent believes he is deservedly defending the allegations and intends to defend himself vigorously. “

The SEC said, among other things, McDermott and his RIA had invested in unit investment trusts (UITs) on behalf of advisory clients. A UIT is an investment product in which the originator or “sponsor” selects securities and deposits them in a trust for a specified period of time.

The products were available to McDermott customers in two versions, according to the SEC. There was a paid version for advisory customers who paid a regular advisory fee, and a standard version for broker-dealer customers who did not participate in an advisory program and paid for the services on a transaction-by-transaction basis.

Investors who bought the more expensive standard version of the UITs had to pay two different fees, the SEC said. Initially, investors were charged a “creation and development fee” of 0.50%, which was paid to the UIT sponsor. Second, investors were charged a much higher “transaction sale fee”, of which roughly 90% was ultimately paid to the broker-dealer who processed the trade, while the remainder was withheld by the sponsor.

Between March 2013 and December 2014, McDermott and its RIA allegedly purchased more than $ 5.7 million in standard UITs across 169 advisory accounts. McDermott’s decision to purchase the standard UITs prompted its RIA’s advisory clients to pay avoidable transaction sale fees of approximately $ 160,000, according to the SEC.

The complaint against McDermott and his companies was filed on September 13 in the US District Court for Eastern Pennsylvania.

McDermott Investment Advisors had just over $ 201 million in assets under management in 675 accounts as of April this year. This emerges from the latest form of the company ADV.

Read the SEC’s complaint against McDermott here.

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