The Securities and Exchange Commission has charged a Chicago-based investment adviser and its CEO with engaging in fraudulent billing practices, reports Investment News.
The SEC filed a complaint in the Northern District of Illinois against P/E Capital Investment Management Partners and CEO, Eliseo Prisno. The agency alleges that from at least February 2019 through at least July 2023, Prisno and P/E Capital charged more than $2.4 million in fees to its clients that were unauthorized and undisclosed. In some instances, Prisno and P/E Capital are alleged to have deceptively circumvented their brokerage firm’s requirement that clients directly authorize any additional fees by using their clients’ login credentials without their consent.
Prison and the firm billed the unapproved fees to more than 220 client accounts, according to the SEC, which added that many of the clients were of Filipino descent, lived either in the U.S. or the Philippines, and were inexperienced investors.
According to the complaint, Prisno and his firm carried out the fraud by signing into their clients’ brokerage accounts using client log-in credentials that they helped set up and routing multifactor authentication texts to their own phone numbers. They would then approve unauthorized quarterly fees on top of the disclosed advisory fees, the SEC said.
P/E Capital disclosed different advisory fees for two different brokerages, one for 2%, another for 2.4%, according to the complaint. One brokerage allowed P/E Capital’s clients to pre-authorize quarterly fee invoicing by P/E Capital up to a set dollar amount. Prisno and his firm allegedly used this quarterly fee cap to charge additional, unauthorized fees to the client, over and above the disclosed advisor fee.
The SEC said the defendants first opened a brokerage account for the client, creating a username, password and security questions on the brokerage’s online platform. They would also input their own contact information, such as a mobile phone number and email address, not the client’s.
“While some clients changed their passwords, others continued to use the password provided to them by P/E Capital,” the complaint said. “This enabled [the defendants] to access a client’s account without [their] knowledge.”
“While the amount of the added fees varied over time and by account, during the relevant period the added fees on average amounted to more than twice to three times the disclosed advisory fees,” the complaint said. “In other words, while P/E Capital disclosed advisory fees of 2% or 2.4%, it actually charged these clients an average of more than 7% of assets under management—totaling more than $2.4 million in added fees charged to at least 220 client accounts.”
Prisno and P/E Capital are charged with violating the antifraud provisions of Sections 206(1) and 206(2) of the Advisers Act. The complaint seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties against both defendants, and a conduct-based injunction against Prisno.
Before founding P/E Capital in 2010, Prisno was affiliated with Merrill Lynch in Cincinnati, Ohio from 2007 to 2009.
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