Financial advisors and wealth management executives fear the Securities and Exchange Commission; the regulators are the hunters, and advisors and their firms are prey, according to the thinking of many advisors and executives in the financial advice industry.
The financial advice industry’s fear and dislike for regulators including those at the SEC is palpable, particularly when advisors and firms believe regulators are overreaching and using enforcement actions instead of guidance and rulemaking to have an impact on sales practices.
Living with the fear of becoming targets, advisors and firms almost never will take the SEC to court to duke it out. Speak up, and regulators will cut out your tongue.
And then there’s Dean Vagnozzi, a former insurance agent in Philadelphia who was briefly a registered rep more than 15 years ago before focusing on selling insurance.
Vagnozzi last month in federal court in Philadelphia, sued the federal government and named and unnamed members of the SEC staff, alleging the SEC in 2020 ruined his business during its investigation into Par Funding, a $300 million to $400 million fraudulent investment vehicle that Vagnozzi’s firm sold to clients but did not operate.
Vagnozzi has not been charged with a crime.
“The SEC clearly blew it with me, and they don’t issue apologies,” Vagnozzi said in an interview this week. “I’m an honest man, not a shyster, and I got dragged through the mud.”
Vagnozzi said he worked at FedEx to keep afloat after his firm, A Better Financial Plan, closed in the summer of 2020. He said he is also currently seeking to lift the suspension on his license to sell insurance.
As local business write Joseph DiStefano noted in a column last month in the Philadelphia Enquirer: “In the lawsuit, Vagnozzi says he was a Par victim, his business wrongfully destroyed amid the investigation that led to criminal charges that have sent eight former Par Funding officials, debt collectors, and accountants to prison after they pleaded guilty to ripping off 1,600 people. Those clients included hundreds of Vagnozzi’s customers and members of his family, and the scheme ended up owing them $240 million.”
Beat the SEC? Who has the cash to take on the federal government? You’re better off tilting at windmills.
A scant number of cases of an advisor or firm besting the SEC comes to mind.
After a six year battle with the SEC over its mutual fund revenue sharing practices, Commonwealth Financial Network last April gained a significant victory when a federal appeals court reversed a $93 million penalty against the firm.
And then there’s Raymond Lucia, who rose to national prominence on his radio show and in books touting an investment strategy known as "Buckets of Money."
After eight years of litigation, which went all the way to the Supreme Court, the SEC in 2020 said it settled the matter with Lucia, barring him from the securities industry but also allowing him to reapply. He was also fined $25,000.
Lucia used to wow audiences with presentations showing how his investment strategy would have protected nest eggs in the booms and busts of the 1960s and ’70s. The SEC in its 2012 complaint said he used fake data to mislead investors.
Lucia had earlier been fined $300,000 by an SEC judge and barred from working as an investment advisor.
The SEC on Thursday did not return a call to comment about Vagnozzi’s complaint. He is seeking tens of millions of dollars in damages.
“Vagnozzi attracted customers with radio ads urging investors to consider alternatives to the stock market,” according to DiStefano. “He paid civil settlements totaling $5.7 million to the SEC and smaller amounts to state securities agencies to settle complaints for selling unregistered securities, including those of Par Funding, a cash-advance lender to businesses that had trouble qualifying for bank loans and others. Vagnozzi blamed the failure to register on bad advice from his long time lawyer, whose insurers agreed to pay investors, Vagnozzi, and others $47 million to settle their claims.”
I have no idea whether Vagnozzi will succeed in his quest, either from monetary damages or regaining his stature in the Philadelphia financial planning market.
But I do admire the man’s tenacity and willingness to fight the SEC, which, as the cases involving Commonwealth Financial Network and Raymond Lucia how, will back down against the right opponent.
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