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RIAs Charged for 'Gambling' With Client Money

The Massachusetts Securities Division accused two advisors of overconcentrating portfolios with risky oil and gas investments.

Massachusetts Secretary of the Commonwealth William F. Galvin charged two advisors for failing to act as fiduciaries and "gambling" their clients' money away.

A complaint filed Wednesday by the state regulator alleged that James Daly and Michael O’Keeffe of Oakdale Wealth Management used more than $11 million of client assets to make high-risk bets on the oil and gas market.

The two advisors started the registered investment advisor in 2006 and managed 257 client accounts. As of Feb. 26, 2016, the firm reported that it managed a total of more than $21 million.

Despite various needs and levels of risk tolerance across their client base, Daly and O’Keeffe are accused of investing nearly every household in publicly traded master limited partnerships, or MLPs, focused on exploration and development of natural resources. The documentation for those MLPs explicitly warns investors of the high risks associated with the securities, but Oakdale invested roughly 30 percent of each client account in them, according to the complaint.

According to the complaint, clients included a charitable organization that gave Oakdale $1 million to manage and suffered a $354,353 loss; a widow who lost most of her retirement savings; and retired police officers and other public employees.

Suitable investments must be appropriately allocated and not overconcentrated in a particular security or sector, otherwise investors' portfolios could rapidly decline in value, the regulator said. Daly was responsible for most of the firm's investment management, and O’Keeffe was the RIA's chief compliance officer.

“This case is an example of how a one-size-fits-all approach to investors can be harmful,” Galvin said, in a statement about the charges. “Advisors need to be acting in the best interests of their clients, particularly when their clients are reaching retirement age and cannot afford to take risks with their hard-earned savings.”

The Massachusetts Securities Division is seeking to fine both Oakdale advisors and have Daly permanently barred from registering as an advisor in the state. The advisors would also be required to give back any profits from the alleged wrongdoing and to provide restitution to investors for their losses.

Galvin has been cracking down on firms that sell risky investments. In September, he announced an investigatory sweep of 63 broker/dealer firms in connection with private placements sponsored by GPB Capital Holdings.

Last month, in an effort to help fintech companies navigate regulatory requirements in Massachusetts, the state securities regulator also created the FinTech Advisory Working Group. The formation of the group comes just months after the SEC levied charges against Wealthfront and Hedgeable in December, the first-ever enforcement actions by the agency on automated advice platforms, or so-called robo advisors.

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