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SEC Charges California-Based RIA for Private Real Estate Conflicts

Santa Clarita, Calif.-based Criterion Wealth Management Insurance Services recommended private real estate funds but failed to disclose 'significant' financial conflicts of interest, the SEC claims.

Investment advisory firm Criterion Wealth Management Insurance Services and its co-owners Robert Gravette and Mark MacArthur have been charged with breaching their fiduciary duty and defrauding investors, according to the Securities and Exchange Commission.

The SEC claims the Santa Clarita, Calif.-based firm recommended private real estate funds but failed to disclose “significant” financial conflicts of interest.

Beginning in 2014, advisory clients of the firm received recommendations to invest more than $16 million across four private real estate developments funds—but those same fund managers had allegedly paid more than $1 million to Criterion, Gravette and MacArthur, all while clients of those three parties were paying advisory fees, according to the SEC. Criterion, Gravette and MacArthur allegedly received the “side compensation” on a recurring basis and only if the advisory clients remained invested in the funds, which effectively stopped clients from allocating their capital elsewhere, noted the SEC.

The alleged wrongdoing continued until 2017. The complaint seeks permanent injunctions, disgorgement and prejudgment interest, as well as civil penalties from Criterion, Gravette and MacArthur.

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