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SEC Charges Texas RIA in $3.7 Million Fraud

Knight Nguyen Investments raised at least $3.7 million from a number of advisory clients and retail investors for high-risk and fraudulent securities offerings, according to the SEC.

A Texas-based investment advisor assured clients he was putting their money into low-risk alternative investments, but instead directed their funds toward a number of high-risk and fraudulent securities offerings, according to the Securities and Exchange Commission.

The commission filed a complaint and a request for a jury trial against Knight Nguyen Investments, its majority owner, Chris Lopez, representative Forrest Jones and Jayson Lopez, Chris' brother. According to the complaint, Knight Nguyen Investments raised at least $3.7 million from a number of advisory clients and retail investors.

Between March 2016 and September 2018, the firm tried to entice investors by portraying its reps as having significant experience with low-risk alternative investments, though Chris Lopez did not have any experience as a securities professional prior to forming the firm (he was registered with both Texas and the SEC for several years). Jones, on the other hand, had been in the securities industry since 2004 but did not have experience with alternative investments, according to the complaint. The two primarily targeted “older and unsophisticated individuals” seeking to boost their retirement savings.

“To lure these individuals to become clients, Chris Lopez and Forrest Jones falsely portrayed KNI as an established firm with a proven track record, telling prospective clients that KNI would only recommend or place clients in investments in companies with a proven history of financial earnings that were secured by real assets,” the complaint read.

To solicit investors, the duo assured clients that their investments were low-risk and consisted of options that were already making money and had been audited by the firm. But Chris Lopez and Jones actually sold clients securities from five high-risk issuers where it was unlikely clients would receive either their principal or the returns the firm promised, the complaint read. The companies in which they invested typically did not have much revenue or earnings, and many of them were owned by, or had an association with, Chris and Jayson Lopez. In all, the scheme affected about 70 investors in a number of states who suffered substantial monetary losses. Neither the firm nor the charged individuals could immediately be reached for comment.

The SEC also claimed Chris Lopez had failed to disclose numerous conflicts to clients, including that his firm received transaction-based commissions; for some sales, the commission amounted to 10% of the principal investment. The firm also failed to adequately disclose their roles in the issuers; Chris Lopez was involved in four of the five issuers in question, including being the part owner of one and the CIO for two others, according to the commission. 

Additionally, the firm failed to tell investors about a lawsuit a client filed against it in 2016, arguing that it had committed fraud in connection with an earlier alleged scheme, the complaint read. The firm also overinflated its assets under management when speaking to clients, claiming it had more than $286 million in AUM when it never actually held more than $100 million, according to the SEC.

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