SEC files cease-and-desist order against adviser accused of stealing $1.1 million

Complaint says New Mexico adviser secretly conspired with manager at broker-dealer to collect bond trading commissions

Jun 10, 2014 @ 12:44 pm

By Mark Schoeff Jr.

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The Securities and Exchange Commission filed a cease-and-desist order Monday against a New Mexico investment adviser for allegedly pocketing bond trading commissions to which he was not entitled.

The SEC accused Dennis J. Malouf, former chief executive and majority owner of UASNM Inc., an investment advisory firm, of establishing a secret oral agreement with the branch manager of a broker-dealer to forward to Mr. Malouf all the commissions from bond trading that the advisory firm did with the broker between 2008 and 2011.

The SEC complaint does not name the broker-dealer or branch manager involved in the case and the regulator declined to comment further.

The SEC complaint did say, however, that Mr. Malouf worked at the broker-dealer mentioned in the case until 2007. Mr. Malouf's Finra BrokerCheck profile indicates that he worked for Raymond James Financial Services Inc. from February 1999 until December 2007. Mr. Malouf is no longer registered with the Financial Industry Regulatory Authority Inc.

Raymond James would not confirm his employment and declined to comment further.

According to the SEC complaint:

• Mr. Malouf ran UASNM's bond trading operation between January 2008 and May 2011.

•The commission arrangement, a conflict of interest, was not disclosed to UASNM clients.

• During that time, UASNM placed more than 200 bond trades through the unnamed broker-dealer branch, averaging between $30 million and $40 million in trades annually, with Mr. Malouf pocketing $1.1 million in commissions.

•UASNM did not attempt to find the best execution for the bond trades, instead it dealt exclusively with the broker-dealer

• Mr. Malouf was the only person at UASNM with knowledge of the under-the-table commissions.

According to a separate cease-and-desist administrative proceeding against UASNM:

• The SEC censured UASNM and reached a $100,000 settlement with the firm.

• When Mr. Malouf filed a lawsuit over the termination, the firm's lawyers discovered the alleged secret commissions.

• The advisory firm fired Mr. Malouf in May 2011 over allegations of misconduct.

• In October 2011, the firm reported to the SEC a possible breach of fiduciary duty by Mr. Malouf.

• The company also is paying $506,083.74 in compensation to 221 clients who were harmed by additional markups that resulted from UASNM failing to find the best prices for their bonds. That compensation comes from an escrow account the company established after the Malouf suit to cover potential best-execution liability.

A public hearing for Mr. Malouf before an SEC administrative law judge will be scheduled for later this summer.

Mr. Malouf did not respond to a request for comment left at his current firm, NM Wealth Management.

“As the architect of the secret commission arrangement with the branch manager and the primary trader of bonds for UASNM clients, Malouf was aware of the conflict of interest posed by the arrangement,” the SEC stated in its complaint. “Yet Malouf did not disclose his secret commission arrangement … to others at UASNM or its outside compliance consultant to enable them to disclose the arrangement or the resulting conflicts of interest.”

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