Agency says Westport Capital's clients lost $1 million through inflated stock buys.
The Securities and Exchange Commission has charged Westport Capital Markets, a Connecticut-based hybrid, and its principal, Christopher E. McClure, with breaching their fiduciary duties and defrauding advisory clients.
The SEC said that Westport and Mr. McClure invested clients' funds in risky securities that generated approximately $780,000 in undisclosed markups for the firm and resulted in more than $1 million in losses for clients, on top of the advisory fees clients paid.
The agency is seeking injunctive relief, disgorgement of ill-gotten monetary gains plus interest, and penalties.
According to the SEC's complaint, Westport for several years purchased securities from underwriters at a discount to the public offering price and then, acting as a principal for its own account, resold those securities to its advisory clients at higher prices without disclosing the markup.
Westport and Mr. McClure sometimes held the securities in client accounts for only a short period of time before reselling the securities and then investing client funds in another offering with a markup, the SEC said.
The complaint also alleges that the firm and Mr. McClure defrauded a client by acting contrary to the client's stated objectives and repeatedly investing the client's funds in risky offerings that generated hidden markups.
In addition, the complaint alleges that Westport and Mr. McClure made false and misleading representations to clients regarding the compensation the firm received and that the firm didn't disclose its conflict of interest in receiving 12b-1 fees from fund companies, or that cheaper shares of the same funds were available.
