A New York-based registered investment adviser, its owner, and its former chief compliance officer have been charged by the Securities and Exchange Commission (SEC) with securities laws violations for unlawfully offering and selling more than $500,000 worth of unregistered, fraudulent securities.
A.G. Morgan Financial Advisors (AGM), of Massapequa, New York, along with owner Vincent Camarda and former CCO James McArthur, were charged Thursday in U.S. District Court for the Eastern District of New York with violating the registration provisions of the Securities Act of 1933 and acting as unregistered broker-dealers in violation of the Securities Exchange Act of 1934, according to the SEC’s complaint. AGM and Camarda were also charged with violating the antifraud provisions of the Investment Advisers Act of 1940.
The SEC is seeking permanent injunctions, disgorgement plus prejudgment interest, and civil monetary penalties in the case.
The unregistered, fraudulent offerings were made with lending company Complete Business Solutions Group, doing business as Par Funding, the SEC explained in a litigation release. The agency previously charged Par Funding and others with operating a fraudulent scheme that raised hundreds of millions of dollars from investors nationwide. States including Pennsylvania, New Jersey, and Texas also launched separate investigations into Par Funding.
According to the complaint, McArthur was CCO of AGM from 2015-20 and has been a registered representative of several registered broker-dealers since 2014. As part of the alleged scheme, Camarda and McArthur “recommended to their investment advisory clients through in-person meetings and by phone to invest in Par Funding by purchasing securities in the form of Par Funding promissory notes,” the complaint said.
Camarda told potential investors Par Funding “was a company that loaned money to small businesses secured by their receivables” and described it as “a low-risk investment,” the complaint said.
McArthur described the investment to one of AGM’s clients as “being fairly safe because of its short one-year term, and given the large volume of loans made by Par Funding, investors had the ability to curtail losses should a large number of loans go into default,” the complaint said. McArthur received 10 percent of AGM’s gross revenues in exchange for his efforts, including soliciting individuals to invest in Par Funding securities, the complaint said.
AGM, Camarda, and McArthur raised $75 million from more than 200 investors and received nearly $7 million for doing so, the SEC said. This conflict of interest was not disclosed to investors.
In 2018, Camarda and McArthur would allegedly create a fund, AGM Fund 1, “for the purpose of raising investor funds for Par Funding through the offer AGM 1 Fund promissory notes and then funneling the investor funds to Par Funding in exchange for Par Funding promissory notes issued to AGM Fund I.” Those promissory notes, the SEC claimed, were unregistered securities.
AGM loaned $500,000 to Par Funding, information it did not disclose to investors, the SEC said. Nor did it disclose Camarda had personally guaranteed some of the loans. The SEC alleged the defendants offered and sold securities to investors without approval from the registered broker-dealer with whom they were associated. The complaint also alleged that in 2017, AGM and Camarda failed to inform advisory clients AGM had borrowed, and had not fully repaid, approximately $750,000 from Par Funding.
“AGM and Camarda had an incentive for their clients to invest in Par Funding because Par Funding was paying down AGM’s debt” on loans “in exchange for Camarda soliciting investors to purchase Par Funding promissory notes,” the complaint said. “The existence of this conflict of interest is a material fact which AGM and Camarda as investment advisers were required to disclose to their clients.”
AGM did not respond to a request for comment.