The Securities and Exchange Commission assessed sanctions in excess of US $1.3 million against Fieldstone Financial Management Group LLC, an investment advisor, and Kristofor Behn, its principal, for failing to disclose material conflicts of interest in connection with their recommendation to clients to purchase promissory notes of Aequitas Management LLC. Specifically, charged the SEC, the defendants failed to disclose that Fieldstone had received a US $1.5 million loan from Aequitas to help pay down personal debt of Mr. Behn, and had access to a US $2 million line of credit under terms that incentivized defendants to recommend investments in Aequitas. The SEC said that the defendants also solicited one client to invest US $1 million in Aequitas without disclosing that Mr. Behn intended to use most of the proceeds for personal purposes.
Prior to soliciting clients to invest in Aequitas, defendants provided them an email discussing a “strategic affiliation” between Fieldstone and Aequitas. However, claimed the SEC, this email did not discuss Mr. Behn’s personal benefit from the US $1.5 million loan or his incentives to sell Aequitas’ notes.
To resolve the SEC’s complaint, defendants also agreed to disgorgement, including interest, of $1.047 million and a fine of US $275,000. Mr. Behn also agreed to be permanently barred from association with most types of SEC registrants.
In 2016, the SEC brought an enforcement action against Aequitas, four of its affiliates and three of its senior executives for soliciting funds from investors while, at the time, failing to disclose the firm’s failing financial situation, and repayment of prior investors’ redemptions and interest payments through funds raised by new investors. (Click here to access the relevant SEC complaint.)