SEC Charges Father-and-Son Adviser Duo with $27 Million Fraud

The U.S. Securities and Exchange Commission (SEC) filed a complaint last Wednesday in Pennsylvania Middle District Court targeting two defendants, who had controlled $27 million in assets, for allegedly defrauding investors. The suit accuses Kevin John Kane and Sean Michael Kane of failing to disclose to investors that they had been terminated from advisory firm Waddell & Reed and of impersonating certain clients to make securities transactions.

The father and son—Kevin John Kane, 66, and Sean Michael Kane, 36, both investment adviser representatives and registered representatives, and both from York, Pennsylvania—were terminated because they had violated the policies and procedures of Waddell & Reed, a dually registered adviser/broker-dealer, on February 23, 2021, the SEC said in a complaint.

As investment adviser representatives, both father and son provided, and were compensated for providing, financial planning and advice to clients, including advice as to the advisability of investing in, purchasing, or selling securities, according to the SEC complaint. As of February 10, 2020, the Kanes were investment advisers to more than 100 clients who collectively had over $27 million in assets under management at Waddell & Reed.

Upon termination, the two were advised that they were terminated for violating company policies including those focused on outside business activities, communications with the public, client/data privacy, and client signatures.

Since March 25, 2021, both have been associated with broker-dealer Cambridge Investment Research as registered representatives; they are still affiliated with that firm, according to BrokerCheck. The Fairfield, Iowa-based Cambridge Investment has 3,800 advisers and manages $144 billion in assets, according to its website.

Both father and son have been charged with fraud by the SEC.

The Kanes allegedly misrepresented to certain clients that they were still associated with their former firm and could still access client accounts. In addition, the complaint alleges that, to further their deceit, the Kanes impersonated certain clients in phone calls to their former firm in order to execute transactions in their clients’ accounts. The Kanes repeatedly violated their fiduciary duties in an effort to convince their clients to join them at a new investment advisory firm so that they would continue to receive advisory fees.

The firm name wasn’t identified by the SEC, either in its complaint or in a news release about the charges on Thursday. But the firm was identified by the Financial Industry Regulatory Authority (FINRA) as Waddell & Reed, where the father had been registered since 2013 and the son since 2018, according to their reports on FINRA’s BrokerCheck website. LPL Financial completed a purchase of Waddell & Reed’s wealth management business from Macquarie Management Holdings for roughly $300 million in April 2021.

The SEC’s complaint also alleged that, following their terminations, the Kanes attempted to persuade some of their clients to join them at their new firm by falsely representing to clients that they left their former firm voluntarily. The SEC seeks permanent injunctions and civil penalties.

From: BenefitsPRO