FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23273 / June 1, 2015
Securities and Exchange Commission v. Sage Advisory Group, LLC and Benjamin Lee Grant, Civil Action No. 10-cv-11665 (D. Mass. September 29, 2010)
Securities and Exchange Commission v. John A. Grant, Sage Advisory Group, LLC and Benjamin Lee Grant, Civil Action No. 11-cv-11538 (D. Mass. September 1, 2011)
Court Orders Massachusetts Investment Adviser to Pay Over $1 Million to Conclude Two SEC Fraud Cases
In the first case, filed on September 29, 2010, the Commission alleged that Lee Grant had fraudulently led his brokerage customers to transfer their assets to Sage, his new advisory firm. Prior to October 2005, Lee Grant was a registered representative of broker-dealer Wedbush Morgan Securities and had customer accounts representing approximately $100 million in assets, virtually all of which were managed by California-based investment adviser First Wilshire Securities Management. According to the complaint, Lee Grant resigned from Wedbush in September 2005 so that he could operate Sage, his own newly-minted investment advisory firm. Lee Grant made false and misleading statements to his former brokerage customers. Among other things, Lee Grant misled customers by telling them that the changes in their accounts were being done at the suggestion of First Wilshire and that First Wilshire was not willing to continue managing the customers' assets if they stayed with Wedbush. Lee Grant also told customers that the "wrap fee" program being offered by Sage offered potential savings, based on historical commission costs - without disclosing that a new arrangement with a discount broker would produce substantial savings to the benefit of Sage, not the customers, under the "wrap fee." To rush his customers to sign up as advisory clients with Sage, Lee Grant falsely suggested that they might suffer disruption in First Wilshire's management of their assets unless they signed and returned the new advisory and custodial account documents as soon as possible.
Following trial, on August 13, 2014, a federal district court jury found both Sage and Lee Grant liable for fraud under the Investment Advisers Act of 1940, among other charges.
In the second case, filed on September 1, 2011, the Commission alleged that Sage and Lee Grant separately violated the antifraud provisions of the Investment Advisers Act, as did Lee Grant's father, Jack Grant. The Commission's complaint alleged that Jack Grant violated a Commission bar from association with investment advisers by associating with Sage and by acting as an investment adviser himself. The Commission bar had been based on a 1988 Commission enforcement action against Jack Grant alleging that he sold $5,500,000 of unregistered securities and misappropriated investors' funds. The Commission alleged in its September 2011 complaint that, notwithstanding his agreement to accept a Commission bar to settle the 1988 action, Jack Grant did not remove himself from the securities business and instead continued to provide investment advice to individuals and small businesses. The Commission's complaint alleged that he retooled his service as the Law Offices of Jack Grant and used his son, Lee Grant, to help implement his investment advice. The complaint further alleged that Jack Grant, Lee Grant, and Sage failed to inform their advisory clients that Jack Grant was barred from associating with investment advisers. In May 2013, the court entered a final judgment against Jack Grant on a settled basis, ordering Jack Grant to pay a total of $201,392.27, among other relief.
The final judgments entered against Sage and Lee Grant on May 29, 2015 conclude the cases and were entered with Sage's and Lee Grant's consent. The final judgment in the first case acknowledges the jury's liability finding, imposes permanent injunctions against future violations of Sections 206(1), 206(2), 206(4), and 204A of the Investment Advisers Act and Rules 204A-1 and 206(4)-7 thereunder, orders Sage and Lee Grant to pay on a joint and several basis $500,000 in disgorgement and $51,038 in prejudgment interest, and orders Lee Grant to pay an additional $350,000 civil penalty. The final judgment in the second case imposes additional permanent injunctions against future violations of Sections 206(1), 206(2), and 207 of the Investment Advisers Act and orders Lee Grant to pay an additional $150,000 civil penalty. As part of their consent in the second case, Sage and Lee Grant acknowledged that their conduct violated the federal securities laws and admitted the underlying facts establishing the violations.
Lee Grant also consented to the Commission's entry in follow-on administrative proceedings of a permanent bar, pursuant to Section 203(f) of the Investment Advisers Act, prohibiting him from association with any broker, dealer, or investment adviser, among other entities. The Commission entered the administrative order on June 1, 2015.
For further information on the first case, see Litigation Release No. 21672 (September 29, 2010) (SEC Charges Massachusetts-Based Investment Adviser with Fraud); and Litigation Release 23066 (August 13, 2014) (Jury Returns Verdict Against Massachusetts Investment Adviser in SEC Fraud Case).
For further information on the second case, see Litigation Release No. 22081 (September 1, 2011) (SEC Charges Massachusetts-Based Attorney for Violating an Investment Adviser Bar and his Son for Failing to Disclose his Father's Bar to Advisory Clients); and Litigation Release No. 22708 (May 30, 2013) (SEC Obtains Final Judgment and Issues Administrative Orders against John A. ("Jack") Grant).