Advisor who put most client assets in equity-linked notes barred by SEC

An Arizona advisor who placed nearly all client assets in equity-linked notes has been barred from the industry for at least three years and will pay $1.6 million in disgorgement and penalties, the SEC stated this week in proceedings against the firm and its owner.

Over about a year starting in November 2020, Dharmesh Vora and his firm, Vora Wealth Management, purchased structured notes for 738 discretionary client accounts, with about $124 million of the firm’s total $139.5 million in assets under management going to those products, the Securities and Exchange Commission wrote in a settlement filing Monday.

“For many clients, including those who relied on distributions from their accounts as part of their monthly living expenses, Vora sold their annuities held at Vora’s insurance firm to purchase the structured notes, Vora did not inform many of his clients that he purchased the structured notes until after they saw the investment on their account statements,” the SEC’s filing stated.

Clients didn’t receive prospectuses for those notes, and the firm “downplayed the possibility that they could lose most, if not all, of their principal invested in the notes, and instead touted the 18 percent to 32.5 percent annualized monthly interest payments.”

The structured notes were tied to four stocks, according to the filing. A year after Vora put the clients’ assets in those products, one of the stocks dropped below a 50 percent downside protection level, and that terminated the coupon payments, the SEC stated. Now, most of the notes have reached maturity, and clients lost a total of $89 million, the regulator said. The notes that have matured saw an average loss of 82 percent of the principal invested.

Since then, numerous clients have brought claims against Vora, according to disclosures on the SEC’s site. Five customer disputes have been settled, and nine are pending.

Emails to the firm and Vora seeking comment were not returned, and there was no answer at a phone number listed on the firm’s ADV.

“It really wiped a lot of people out,” said Lars Soreide, a lawyer who is cocounseling several of the former Vora clients. “I’ve got some retirees who have lost upwards of $300,000 to $400,000.”

Soreide said that Finra oversight can discourage advisors from allocating client assets heavily to equity-linked notes or other investments that may not be appropriate.

“If this was a Finra firm, this probably never would have happened – at least not to this exent,” he said.