Christopher Edward McClure of New York New York the president and chief executive officer of Westport Capital Markets LLC (a dually registered investment advisor and brokerage firm) has been charged by Securities Exchange Commission (SEC) in a Complaint along with Westport alleging that McClure and the firm defrauded their advisory customers. Securities and Exchange Commission v. Westport Capital Markets LLC Case No. 3:17-cv-02064 (Dec. 11, 2017).

According to the Complaint, McClure and Westport, as investment advisers, were obligated to manage investments of customers in their customers’ best interests. They reportedly defrauded their customers instead. Apparently, McClure and Westport were authorized by customers to make the investments in customers’ accounts, but they utilized that authorization inappropriately by continuously generating compensation via undisclosed fees and mark-ups by way of their purchases of securities in the customers’ accounts.

The Complaint alleged that the fees and mark-ups charged by McClure and Westport totaled about $780,000.00, and had been assessed in addition to what customers were paying the firm for their investments to be managed. SEC alleged that those securities containing the undisclosed mark-ups were speculative and produced significant losses. One of the customers affected by the conduct of McClure had even instructed him to invest the customer’s investments in a conservative manner.

The Complaint revealed that the undisclosed mark-ups had been received by McClure and Westport between March of 2012 and June of 2015, during which time the firm, in the capacity of principal, executed securities sales to customer accounts from its proprietary account. The Complaint stated that McClure and Westport, as advisers, were required to obtain the customer’s informed consent in effecting sales from the proprietary account, which necessitated Westport’s disclosure to customers of the firm’s conflict of interest. SEC contended that omissions had been made to the customers of information that was essential to the customers’ ability to examine the motives of McClure and Westport in purchasing the speculative investments for customers’ accounts.

The Complaint further alleged that Westport, acting as broker-dealer, obtained 12b-1 distribution fees in circumstances where the firm and McClure placed the advisory customers in particular share classes of mutual funds. Advisory clients were seemingly in the dark about McClure and Westport generating further compensation from them in this regard. Critically, SEC contended that investors could have been placed in a share class without the distribution fee; however, customers were placed in those share classes that carried the 12b-1 fee.

The Complaint stated that McClure and Westport owed a fiduciary duty to their advisory customers but this duty had been breached by way of McClure and Westport: failing to apprise customers about conflicts of interest; making investment decisions that did not reflect customers’ best interests; and committing fraud. McClure and Westport were alleged by SEC to have violated Investment Advisers Act Sections 206(1), 206(2) and 207; Westport was alleged to have violated Investment Advisers Act Section 206(3); and McClure was alleged to have aided and abetted the firm’s Investment Advisers Act Section 206(3) violation.

Financial Industry Regulatory Authority (FINRA) Public Disclosure confirms that McClure is referenced in two customer initiated investment related disputes pertaining to accusations of his misconduct. In particular, a customer initiated investment related arbitration claim regarding McClure’s conduct was settled for $50,000.00 in damages founded on allegations that while McClure was associated with Prudential Securities Incorporated and Westport Capital Markets LLC, McClure placed equities trades in the customer’s account that were neither authorized nor suitable, and inappropriately utilized the customer’s margin account. National Association of Securities Dealers (NASD) Arbitration No. 03-07016 (June 21, 2004).

Then, a customer filed an investment related arbitration claim involving McClure’s conduct in which the customer sought $300,000.00 in damages based upon accusations including misrepresentations, omissions, breach of fiduciary duty, breach of contract and negligence in reference to the handling of investments in the customer’s advisory account. FINRA Arbitration No. 17-03501 (Jan. 2, 2018).

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