The Securities and Exchange Commission has censured Foxboro, Mass.-based Fieldstone Financial Management Group and charged the firm and its principal, Kristofor R. Behn, with defrauding clients by failing to disclose conflicts of interest.
The SEC, which terminated Fieldstone's registration in March, also barred Mr. Behn.
The conflicts cited by the agency were related to recommendations to invest in securities issued by affiliates of Oregon-based Aequitas Management, which collapsed in 2016.
The SEC also charged Mr. Behn with fraudulently misusing approximately $500,000 of one investor's funds to pay personal expenses, according to an SEC release.
The SEC ordered Fieldstone and Mr. Behn to pay disgorgement and prejudgment interest of $1,047,971 and a penalty of $275,000, all of which will be distributed to harmed investors.
According to the SEC's order, from 2014 to early 2016, approximately 40 retail clients of Mr. Behn's firm invested more than $7 million in Aequitas securities, which were the subject of a previous commission enforcement action.
The order said that Mr. Behn and Fieldstone failed to disclose that Aequitas had provided Fieldstone with a $1.5 million loan and access to a $2 million line of credit, both of which had terms that created a significant financial incentive for the adviser and his firm to recommend Aequitas securities to their clients.
The order also said that Mr. Behn and Fieldstone made material misstatements and omissions in reports filed with the commission, including false representations that the repayment terms of the loan from Aequitas were not contingent on Fieldstone clients investing in Aequitas.