An attorney and investment adviser have settled SEC charges over a referral scheme they created to disguise illicit fees. The referral scheme was created to disguise payments from an elderly widow’s account to the attorney for “legal services”, which were actually illicit fees for referring her accounts valued at more than $100 million to the investment adviser.
Attorney Peter Hershman of Connecticut and adviser John Rafal, who was once president and CEO of Essex Financial Services Inc., agreed to pay $90,000 and $575,000, respectively, for failing to disclose the lawyer’s improper fees, which was a violation of securities laws. Essex Financial Services also agreed to pay more than $180,000 in disgorgement to end claims against the brokerage firm related to Rafal’s actions. Hershman and Rafal had known each other for 25 years. In 2011, they agreed that Hershman would get an annual fee of $50,000 from the client’s advisory fees, though Hershman was not registered as an investment adviser.
Instead of telling their client about the referral fees, they disguised the payments through fake legal invoices to avoid detection. Essex employees discovered the scheme, after which Rafal was let go from the company and Hershman was asked to return the money paid to him. Instead, Rafal transferred an additional $24,570 from another account under his control.
Hershman told the SEC that he returned all the fees gained from the referral scheme back to Essex Financial, which was untrue, causing an investigation with the Massachusetts U.S. attorney’s office. Criminal charges against Hershman. When concerned Essex clients caught wind of rumors regarding Rafal’s actions, Rafal sent emails telling them he had been investigated and fully exonerated. Senior officials ordered him to retract the statements.
Call a Los Angeles Securities Fraud Attorney Today
Even though referral fees can be legal in certain circumstances, that is not always the case. If you believe you have been charged for services that cannot be explained or do not make sense to you, you may have certain legal rights that require your immediate attention.
Contact an experienced Los Angeles securities fraud attorneytoday for a consultation to discuss your rights and options.