The former comptroller of a registered investment advisor owned by her father will spend six years in prison after pleading guilty to her role in their scam defrauding clients for $11.4 million. The compliance woes of some so-called hybrid RIAs remain a problem, though, experts say.
Vania May Bell
"Over two decades, Bell and her father Hector May ruthlessly orchestrated a multimillion-dollar Ponzi scheme," U.S. Attorney Damian Williams said in a statement. The victims included "vulnerable aging couples, close friends, relatives and an employment pension plan of a construction company," Williams said. "Bell now joins her father in prison to be held accountable for this devastating crime."
The public defenders who represented Bell, a 57-year-old resident of Montvale, New Jersey, didn't respond to an email seeking comment on the case. Her attorneys had asked for a term below the government's request for at least eight years in part by arguing that an at-times "violent and abusive" and frequently absent relationship with her father had made it easy for him "to manipulate his daughter into becoming his accomplice."
Representatives for Advisor Group declined to comment on the case. In the SEC case that Securities America
The shuttered New City, New York-based RIA at the center of the case, Executive Compensation Planners, displays the complex role of such hybrid firms in the industry. Hybrid RIAs are firms owned by advisors or branch managers who are also affiliated with brokerage firms such as Securities America. The RIAs often serve as
Amid other recent cases
"Most of these people, they're good. The bad actors see this as regulatory arbitrage," Edmiston said in an interview about hybrid RIAs. "This happens with a degree of frequency that is shocking. In many instances, it's not picked up and taken as far."
Edmiston's organization, which is an advocacy group for lawyers who represent clients in cases against the industry, strongly
"PIABA members have seen, all too often, registered representatives establishing solo or small [RIA] firms and using outside business activities in order to avoid member supervision, in order to engage in activities that harm investors," the organization wrote at the time. Its letter included a list of four different schemes that allegedly cost hundreds of clients a combined $46.5 million.
Representatives for FINRA declined to comment on the questions posed by May's case about brokerage supervision, noting a policy against discussing investigations. Representatives for the SEC pointed to the
Like most large wealth managers who are known in the industry as dually-registered firms, Securities America has an RIA subject to fiduciary standards requiring it to place clients' interests ahead of its own and a brokerage that only needs to act in their best interest.
Securities America's RIA had assigned some aspects of the supervision to the brokerage, but it had the responsibility to enforce its own policies and procedures tailored to its business, according to the SEC. Besides the fiduciary duty, the national wealth managers' RIAs could face enforcement actions involving their affiliated hybrid firms under guidelines like the compliance
With tens of thousands of RIAs registered with the SEC and at the state level in offices spread all over the country, however, there "just aren't resources for regulators" that would be necessary for aggressive oversight of all of them at once, according to Edmiston. The wealth managers have a conflict of interest stemming from the way that the hybrid RIAs boost their profits, while the clients aren't likely to grasp the technical details of the setup, he said.
"That's the perfect scenario for a bad actor to exploit investors," Edmiston said. "There's no indication of any red flags for clients to think that there's anything wrong."
In the case of May and Bell, at least, many of the clients have received payment for their losses from Securities America and the advisor and his daughter have substantial prison terms. Bell's sentence includes three years of supervised release, restitution of more than $8 million and the forfeiture of any additional $590,000.
Bell "was no minor or marginally significant participant in this crime," according to the Justice Department's sentencing memo from earlier this month. "Bell faked account statements that made people believe that they held millions, even when she knew (thanks to her tracking spreadsheets on QuickBooks) that their money was stolen. Bell wielded her role as chief compliance officer and comptroller to help conceal the fraud from [Securities America]."
