The SEC recently charged three affiliated investment firms and some of their senior executives with violations of the Investment Advisers Act of 1940, including fraud and misuse of client assets (SEC v Landberg, S.D.N.Y., No. 11 CV 0404, 1/20/11).

According to the SEC's complaint, West End Financial Advisors, LLC, West End Capital Management LLC, and Sentinel Investment Management Corp., all affiliated entities located in New York City, and their executive officers, William Landberg and Kevin Kramer, misled investors about their investments being safe. In fact, according to the SEC, the investor's funds were in jeopardy due to financial problems due to Mr. Landberg's “failed investment strategies.” Among other things, according to the SEC charges, the investment advisers misappropriated and commingled client assets while maintaining that they had a successful operation. According to the SEC, the defendants used client assets to fraudulently obtain a bank loan and used millions of dollars of client assets for personal benefit.

According to the SEC, Mr. Landberg concealed the dire financial condition of his firm by, in part, using client assets in an attempt to prop up his firm and pay off other clients who demanded a return of their assets. Mr. Landberg also is facing a criminal securities fraud complaint in the same New York district court over his activities at West End.

According to the SEC, Kevin Kramer, one of the executives charged, appeared on national television to brag about the safety of West End's investments during the time that the fraud and concealment were taking place.

The SEC is seeking an injunction against future violations of securities laws for each of the defendants, as well as disgorgement and civil penalties.