SEC wins $1.5M judgment in case against imprisoned advisor

A Connecticut-based advisor already serving more than seven years in prison has been ordered to pay nearly $1.5 million over allegations that he defrauded at least nine investors.

Leon Vaccarelli was accused by the Securities and Exchange Commission in August 2017 of failing to put client money into standard brokerage accounts, as promised, and instead using the money for personal expenses or to compensate earlier investors. He was sentenced in October 2020 in federal court in Connecticut to 90 months in prison after being found guilty by a jury of three counts of mail fraud, nine counts of wire fraud, six counts of securities fraud and three counts of money laundering. He was then ordered in a civil action roughly two months later to pay nearly $1.46 million in restitution to clients.

In its separate case, the SEC alleged Vaccarelli and his firm, Lux Financial Services, violated various provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. In one instance cited in the regulator's complaint, Vaccarelli was approached by a client seeking an explanation for why his IRA statement showed a balance of less than $500. 

Vaccarelli said there had been an apparent misprint, the SEC alleged. The broker then wrote "$90,476" on the account statement as a confirmation of the "actual" amount, the regulator contended. In reality, the account contained only $476, according to the SEC's complaint.

He was also accused of asking one customer to sign an agreement that she would not report certain types of information to the Financial Industry Regulatory Authority or the SEC. And Vaccarelli was alleged to have sold more than $450,000 worth of securities that were held in trust for a client and used the money for business and personal expenses. Attempts to reach Vaccarelli's lawyer were unsuccessful.

In the SEC case, Senior U.S. District Court Judge Charles Haight, ordered Vaccarelli to pay roughly $1.4 million in disgorgement, plus $99,610 in prejudgment interest. That will be offset by the amount Vaccarelli has to pay in his criminal case, meaning he owes an additional $62,309.

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Vaccarelli, who is serving his time in a Massachusetts federal prison, was once affiliated with the Investment Center, an independent broker-dealer. According to the BrokerCheck database maintained by the Financial Industry Regulatory Authority, he was dismissed in July 2017 for failing "to comply with company policy regarding access to his office and computer during an examination."

Vaccarelli has 16 disclosures of customer complaints and other matters on his BrokerCheck page. In 2015, FINRA fined him $7,500 and suspended him for one month over allegations that he exercised discretion over clients' accounts without their permission.

Michael Edmiston, a securities lawyer at Jonathan W. Evans & Associates in Studio City, California, said that complaint caused Vaccarelli to be placed on "heightened supervision" by Investment Center, meaning he should have been subject to strict internal scrutiny. Edmiston said a proper close look into Vaccarelli's actions should have uncovered his misdeeds sooner.

"With heightened supervision, you don't see it except in the worst-case scenarios," Edmiston said. "Even then in this case, it apparently took two years to send someone around to look at his books and records. This could have been stopped earlier."

"Since being made aware of the situation with Mr. Vaccarelli, we have been cooperating fully with the SEC's investigation," Investment Center CEO Ralph DeVito said in a statement in 2017. "We are outraged by Mr. Vaccarelli's alleged behavior and continue to investigate the matter internally in order to aid ongoing investigations."