Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Tuesday, June 29, 2010

SEC Charges California Investment Adviser with Fraud and Fiduciary Duty for Unsuitable Recommendations

On June 28, 2010, the SEC filed a civil action in the United States District Court for the Central District of California charging Life Wealth Management, Inc. and its owner Jeffery S. Preston with fraud and breach of fiduciary duty for placing clients in unsuitable investments and misrepresenting and failing to disclose the risks of these investments.  The SEC alleges that Life Wealth and Preston invested $6.9 million of client funds in unsecured promissory notes issued by Atherton-Newport Investments, LLC, a real estate company that buys and renovates distressed properties and is headquartered in Irvine, Calif. Beginning in or about October 2005, Preston recommended the notes to Life Wealth clients even though the notes were not suitable to the clients' risk tolerances. Preston also characterized the notes as a "solid" and "strong" investment without disclosing the risks inherent in an unsecured loan. Atherton-Newport defaulted on all of the outstanding notes in September 2007, which amounted to almost total losses for Life Wealth clients.

The SEC is seeking permanent injunctions barring future violations of the federal securities laws, disgorgement of the defendants' ill-gotten gains with prejudgment interest, and monetary penalties.

http://lawprofessors.typepad.com/securities/2010/06/sec-charges-california-investment-adviser-with-fraud-and-fiduciary-duty-for-unsuitable-recommendatio.html

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