A New Canaan, Conn., man, who has since been barred from the securities industry, pleaded guilty Wednesday in a New York federal court to defrauding his clients of $1.6 million, according to the U.S. Attorney for the Southern District of New York. The Securities and Exchange Commission filed a similar complaint against Elias Herbert Hafen, who allegedly committed the fraud while working at former employers Morgan Stanley and Wells Fargo, on Thursday.
According to the complaints, Hafen took more than $1.6 million from 11 of his advisory clients, telling them he would invest the funds into a high-yield investment with a guaranteed 6% annual return. He told clients to liquidate stock holdings and personal retirement accounts and transfer that money into his personal bank account; he produced fake account statements with the name of the nonexistent investment company, the allegations said.
Instead, he spent the money on personal things, such as paying house, car and credit card expenses for himself and family members. The attorney general said he bought custom men’s accessories and an expensive art collection.
The scheme ran from 2011 to 2018, when he was barred from the industry, the SEC stated. The SEC added that Hafen has returned approximately $650,000 to affected clients.
“We have fully cooperated with law enforcement in their investigation, and we are committed to making restitution to the limited number of impacted clients,” a Morgan Stanley spokesperson said in a statement.
“At Wells Fargo Advisors we hold our advisors to the highest professional standards. The advisor involved in this matter is no longer with the firm,” said Jackie Knolhoff, Wells Fargo spokeswoman.
Hafen pled guilty to one count of investment advisor fraud, which carries a maximum penalty of five years in prison.