SEC bars advisor who used senior clients’ cash for secret options trading

The SEC has barred a former Fifth Third advisor who violated his clients’ trust by secretly funneling hundreds of thousands of dollars of their money into failed options trades.

In an order dated June 17, the SEC said it’s barring David Sheldon Wells of Chicago, Illinois from associating with any broker, dealer, or investment advisor, a sanction it deemed “appropriate and in the public interest.”

According to the SEC order, Wells, 33, was employed as an investment advisor representative and registered rep at a registered firm from October 2020 through July 2021, when he misappropriated $683,000 from three of his clients.

Wells’ BrokerCheck profile shows he was only registered in the industry for roughly four years, from 2017 to 2021, starting at Merril Lynch. During the time of his violations, he was registered with Fifth Third Securities.

The SEC first filed charges against Wells in a civil action in September 2022. In its complaint at the time, the regulator said he fraudulently solicited three of his senior clients, including one suffering from dementia, to give him money to invest on their behalf.

The complaint details how Wells told each of his clients to purchase cashiers’ checks made out to a corporate entity named Wayne and Stark. He falsely said those investments would be made through and under the supervision of his employer firm.

What he didn’t tell the clients was that he was the sole owner of Wayne and Stark. After the clients made their investments, ranging from $33,000 to $254,000, Wells would transfer virtually all of the money into personal brokerage accounts that he owned or controlled.

According to the complaint, Wells used the accounts to engage in risky options trading, where he lost nearly all the funds. The complaint also alleges Wells spent some of his clients’ funds on personal expenses.

“Wells’s misrepresentations and omissions were material because none of the clients would have provided funds to Wells if they knew he was going to invest their funds through a personal brokerage account and engage in risky options trading,” the complaint read.

On February 27, 2023, the United States District Court for the Northern District of Illinois issued a final judgment against Wells, permanently enjoining him from future violations of Section 10(b) of the Exchange Act, Rule 10b-5, and Sections 206(1) and 206(2) of the Advisers Act.

Following that judgment, Wells submitted an offer of settlement to the SEC, where he agreed to be barred from the industry.

Finra has already permanently banned Wells from the securities industry for his violations.