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In the Courts
New York Brokerage and Two Executives Ordered to Pay $1.58 Million for Misleading Investors In High-Yield Securities Case
On Sept. 23, 2019, New York brokerage firm, Portfolio Advisors Alliance Inc. (Portfolio), along with two of its senior executives, were ordered to pay a combined total of $1.58 million in civil penalties, disgorgement and interest after being found guilty of fraud for lying to investors by a Manhattan federal jury in May 2019. Howard Allen, Portfolio's indirect owner, and Kerri Wasserman, its president and one-time Chief Compliance Officer were found guilty of aiding and abetting Portfolio's violations as well as being liable as control persons who operated the brokerage. The trial proceeded before Judge Kimba M. Wood in the U.S. District Court for the Southern District of New York.
The fraud related to approximately $860,000 in commissions earned by the defendants between 2011 and 2013 as they sold $9 million of shares in lender American Growth Funding II LLC (American Growth) while making material misrepresentations and omissions about the fact that it hadn't been audited. In fact, the lender was not audited until 2014. American Growth raises capital from investors to provide higher-risk, high-interest loans to businesses that are not supported by more traditional lenders. American Growth and its principal, Ralph Johnson, had earlier settled with the SEC, with Johnson agreeing to pay $75,000 in civil penalties without admitting or denying the SEC's allegations.
At trial, the SEC alleged that the defendants, American Growth and Johnson had assured more than 80 individual investors that they would receive 12% annual returns on their purchased shares and misrepresented in a private placement memorandum that the lender had been audited when in fact it had not. In addition, a substantial loss in value on American Growth's primary asset was concealed from investors. The SEC contended that Portfolio knew of material omissions in the offering documents but failed to correct or notify clients as to these inaccuracies.
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