A former Alabama financial advisor was penalized by the Securities and Exchange Commission over an alleged breach of fiduciary duties to his clients in connection with the sale of his investment advisory business, Financial Advisor reports.
The United States District Court for the Middle District of Alabama entered a final consent judgment against the advisor, James Blake Daughtry. The case stems from Daughtry’s sale of his business to Jared D. Eakes and his firm GraySail Advisors.
The SEC’s complaint states that Eakes misappropriated approximately $2.6 million from GraySail’s clients, several of whom had previously been advisory clients of Daughtry.
“As alleged, Daughtry told his clients that he would monitor their accounts, and review any proposed investments with GraySail before such investments were consummated, but he failed to abide by these promises, even when several clients questioned certain investments that had been made in their accounts with GraySail,” the SEC stated. “According to the complaint, Daughtry’s failure to exercise the requisite care for his clients enabled Eakes to defraud these clients.”
The SEC contends that although Daughtry was unaware of Eakes’ fraud, he breached the fiduciary duties he owed to his clients by failing to disclose that he had sold all of his client accounts to GraySail in exchange for substantial compensation, and by failing to act in his clients’ best interests when he was presented with client complaints and other red flags regarding Eakes’ conduct.
Without admitting or denying the allegations in the SEC’s complaint, Daughtry consented to the entry of the final judgment, which permanently enjoins him from violating Section 206(2) of the Investment Advisers Act of 1940, permanently enjoins him from associating with a broker, dealer or investment adviser, and orders him to pay a $50,000 civil penalty. The SEC’s litigation against Eakes remains pending in the Middle District of Florida.
Last September, Florida-based Eakes pleaded guilty to wire and bank fraud after prosecutors said he converted $2.7 million in investor funds, withdrawing the funds in cash to pay for personal expenses and engage in options trading. Eakes allegedly used the proceeds to, among other things, engage in unprofitable trading in his personal brokerage accounts, pay off business and personal loans, including his own student loans, and pay $116,000 to a Las Vegas casino.
Eakes was also accused of fraudulently taking $4.7 million in emergency loans through the Paycheck Protection Program, a government program offered help to small businesses during the Covid-19 pandemic.
The U.S. Attorney’s Office said that Eakes held himself out as a legitimate advisor and offered to buy books of business from other advisors.
Daughtry filed suit against Eakes in 2020, saying that after agreeing to sell the business to him, he did not receive access to client accounts and could not get information about brokerages.
Hyman Cotter PC routinely represents investors nationwide who were harmed when financial professionals and their firms breached their fiduciary and other duties. Our team includes lawyers who have worked for large financial institutions, including Morgan Stanley and UBS Financial Services, and regulatory bodies such as the SEC. We bring a unique level of knowledge when representing the rights of investors. We have a depth of experience resolving cases through various means, including arbitration and litigation when necessary. If you were the victim of a breach of fiduciary or other duties owed to you by a financial professional or financial firm, contact Hyman Cotter at (833) 665-0784 or through our online contact form for a no-cost evaluation of your matter.
