A father and son financial advisor team is asking a federal appeals court to reverse the Securities and Exchange Commission’s action to bar them from the industry, according to Financial Advisor.
Michael Sztrom, 66, and David Sztrom, 30, of Rancho Santa Fe, California reached a settlement with the SEC in October 2022 over allegations of defrauding clients. The two consented to $25,000 in civil monetary penalties but did not admit or deny the allegations.
Seven months later, the SEC filed to have the Sztroms barred, a move that was upheld by a federal court judge. The two have now filed suit in the U.S. District Court of Appeals for the District of Columbia to block the action, asking the court “to stop the agency from prosecuting them in its non-jury administrative adjudication tribunal.”
The case dates back to 2021, when the SEC filed a complaint saying that Michael Sztrom had continued making investment recommendations even though he was barred from doing so, using his son’s registered advisory firm as a front.
Michael Sztrom left his role at an advisory firm in order to start his own business, but learned that he was under FINRA investigation and would not be allowed to make client trades through several clearing broker/dealers, the SEC said..
According to the commission, Michael and David contacted Advanced Practice Advisors (APA) to see if they could work there and were told the elder Sztrom could not join because of the investigation but the firm agreed to work with David, who had recently passed his securities licensing exam.
“Despite being told he could not associate with APA and despite being banned from the clearing broker/dealers, Michael continued to serve as an investment adviser to clients and used the services of APA’s broker/dealer Charles Schwab & Co. (“Schwab”) by impersonating David on at least 38 separate telephone calls, sometimes when David was present,” the complaint read.
“When Schwab discovered Michael’s deception, it immediately terminated David’s access to its platform and gave all of the APA clients 90 days to either find an investment adviser other than APA or move their brokerage accounts to another brokerage firm,” the complaint states.
The Sztroms are now challenging the SEC’s efforts to bar them, calling it unconstitutional.
“SEC’s adjudication of its own administrative follow-on prosecution against the Sztroms—after SEC already sued them in federal court and publicly amplified those charges with a self-congratulatory press release—profoundly deprives the Sztroms of their Fifth Amendment right to due process of law in the form of an unbiased adjudicator,” according to the lawsuit that was filed by the nonprofit public interest law firm New Civil Liberties Alliance.
The lawsuit said the SEC’s action deprives the Sztroms of their right to a jury trial. The filing cited several Supreme Court decisions that challenged the structure of the agency’s non-jury administrative adjudications tribunals.
A decision by the SEC to bar or to suspend the Sztroms “would inflict immediate and irreparable harm on them and also harm the investors Michael currently advises, many of whom have been long-time clients,” the lawsuit said.
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