The Securities and Exchange Commission has censured Fieldstone Financial Management Group and charged its principal with defrauding clients by failing to disclose conflicts of interest.
Kristofor R. Behn, 46, of Foxboro, who founded Fieldstone, recommended that clients invest in securities issued by affiliates of Oregon-based Aequitas Management LLC without disclosing Aequitas provided Fieldstone with a $1.5 million loan and a $2 million line of credit, according to the SEC.
The loan and the line of credit, the SEC said, had terms that created a significant financial incentive for Behn and the Foxboro-based Fieldstone to recommend Aequitas securities to their clients.
Behn also fraudulently misused about $500,000 of one client, who invested $1 million in Fieldstone, to pay personal expenses including more than $300,000 in personal taxes and other debts in addition to taking cash withdrawals for himself, according to the SEC.
The agency on July 1 ordered Behn and Fieldstone to pay disgorgement and prejudgment interest of $1.04 million and a $275,000 penalty, all of which will be distributed to harmed investors.
Neither Behn nor Fieldstone admitted or denied the commission’s findings.
But the SEC said Behn and his firm consented to the issuance of the order, which finds that they violated the anti-fraud provisions of the federal securities laws and orders them to cease and desist from future violations.
Behn will also be permanently barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.
According to the SEC’s order, from 2014 to early 2016 about 40 clients of Behn and Fieldstone invested more than $7 million in Aequitas securities, which were the subject of a previous commission enforcement action.
Behn founded Fieldstone and was its managing member and chief compliance officer during the period, according to the SEC.
The order also found that Behn and Fieldstone made material misstatements and omissions in reports filed with the SEC, including false representations that the repayment terms of the loan from Aequitas were not contingent on Fieldstone clients investing in Aequitas.
“Behn flagrantly disregarded his most basic duties as an investment adviser by concealing the significant financial incentives he and his firm would receive by recommending investments in Aequitas,” Erin E. Schneider, director of the SEC’s San Francisco Regional Office, said in a statement.
“The Commission is committed to rooting out breaches of fiduciary duty to retail investors,” she said.
Behn could not be reached for comment.