The Securities and Exchange Commission announced settled charges against a New York-based registered investment advisor and one of its former representatives for breaching their fiduciary duties to clients.
The matter involved One Oak Capital Management LLC, and former One Oak investment adviser representative, Michael DeRosa, who were charged with misconduct related to advisory services provided to their retail clients.
The SEC’s order found that from June 2020 to October 2023, One Oak and DeRosa recommended that DeRosa’s customers at an unaffiliated broker-dealer, where he was simultaneously employed, convert more than 180 brokerage accounts to advisory accounts at One Oak. Most of the customers were elderly and long-time customers of DeRosa’s at the broker-dealer, which charged them on a commission basis.
“According to the order, One Oak and DeRosa ignored their fiduciary duty and failed to adequately disclose that the conversions from brokerage accounts to advisory accounts would result in significantly higher fees for the clients and increased compensation for DeRosa; nor did they disclose the resulting conflict of interest”, the SEC said.
As the result of the change in fees, the clients had significantly increased costs without receiving any added services or benefits. It was further determined by the SEC that One Oak and DeRosa failed to adequately consider whether it was in their clients’ best interests to convert their brokerage accounts to advisory accounts, and that many of the accounts were not suitable to be advisory accounts.
“We remain committed to holding accountable investment advisers who breach their fiduciary duties at the expense of retail clients,” said Tejal D. Shah, Associate Regional Director in the New York Regional Office. “One Oak and DeRosa converted brokerage accounts to advisory accounts when it benefitted them through higher fees, but that conversion was not in their clients’ best interests.”
One Oak and DeRosa were found to have willfully violated the antifraud provisions of Section 206(2) of the Investment Advisers Act of 1940. One Oak were also found to have violated the compliance rule provisions of the Advisers Act.
One Oak did not admit or deny the SEC’s findings but consented to an order requiring it to pay a civil penalty of $150,000 and to retain an independent compliance consultant to review certain policies and procedures related to its retail business. DeRosa did not admit or deny the findings but agreed to a civil penalty of $75,000 and to a nine-month industry suspension.
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