A major LPL Financial hybrid RIA firm quietly settled a lawsuit brought by fraud victims alleging that its response to a former financial adviser’s scheme was “as egregious and criminal as the crime itself.”
Integrated Partners’ RIA — Integrated Wealth Concepts – and LPL paid $500,000 each to Dianne G. Crossland, the widow of Paul Saganey. The case against Integrated and John Cataldo, owner of Integrated, was settled by FINRA BrokerCheck records. Jason Lahita, Integrated spokesperson, said that the complaint and the case record. LPL’s growth is fueled by enterprises like Integrated, but can pose compliance risks to the firm.
Crossland was awarded $1 million to cover her losses. Matthew O. Clason (former LPL and Integrated advisor) is currently in federal prison serving a sentence of more than 2 years for defrauding an “elderly” client of $600,000. A previously unreported lawsuit by a 73-year old woman sheds light on a case where a victim was awarded compensation for fraud losses. After a wealth manager first blocked her arbitration claim, then left the case out disclosures and went to RIA clients.
“The first thing I noticed was, ‘Why did this get to this point?,” Michael Edmiston, an associate with Jonathan W. Evans & Associates, and president of the Public Investors Advocate Bar Association said about the lawsuit.
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Edmiston stated that “usually, the firm, its insurers, or its counsel is much more sophisticated and want to get that matter solved quickly and quietly.” “The firm was being defended tried to use the arbitration clause to stop Ms. Crossland from filing a claim. This is the part that I found disgusting.”
Response to allegations
LPL representatives didn’t respond when asked for comment. Clason’s criminal defense attorney declined to comment last year on behalf of the 40th-year-old resident at Otisville Federal Correctional Facility in Otisville. Clason pleaded guilty to wire fraud last May.
According to the defendant’s November sentencing memo, “Sadly, when Mr. Clason was engaged in that instant offense, he knew that greed got the better of him.” He wants the victim to understand how sorry he is, and that if he could return in time, he would. It affected his family’s ability to make a living and affected his relationship with his kids. It also affected the victim.”
In December, a judge at Hartford’s federal court ordered Clason to serve a 30-month sentence, two years of supervision, and $639,580 in restitution. Federal prosecutors requested that Crossland be restitution paid after citing the fact that Crossland was jointly reimbursed by LPL and an asset manager retained by Integrated’s insurance.
According to Crossland’s written statements, “There have been endless calls and appointments to get it straightened out, but it feels like more things keep popping up,” the filing includes. “I am tired. “I am tired. He does illegal things, but I must find ways to fix them all.
She continued, “I will be a victim long enough,” “I treated Mr. Clason as if he were my family. He is a disgrace.” He took advantage of me and used my trust and care. Every day I feel anger and fear, frustration, stupidity, sadness, and frustration. It is difficult to get over this.
Most settlements include clauses that prohibit the parties from discussing a case publically. According to the notice filed in Boston federal court last March, Integrated, Cataldo, and Saganey never filed an “answer or another responsive pleading” in response to Crossland’s allegations. According to the August SEC Form ADV brochure, there are no “legal, regulatory or disciplinary incidents involving Integrated” . The company did not make any available for an interview on the record.
“Matthew Clason was a fraudster who actively concealed his wrongdoings from all parties,” Lahita (spokesman for Waltham-based Integrated) stated in a statement.
Lahita stated that the firm terminated Mr. Clason immediately after the allegations were made against him. The firm assisted the United States Attorney’s Office with its case against Mr. Clason. It advised Mr. Clason’s victim to get a private attorney to protect her rights. We are pleased that the case was settled in February 2021 jointly with Mr. Clason’s broker-dealer. This made the victim more than compensated for Mr. Clason’s assets.
What is the definition of material?
Representatives of the SEC declined to comment due to a policy that prohibits commenting beyond public filings. The official instructions for RIAs refers to the Section of Form ADV Brochure on Disciplinary Disclosures. Item 9 is the disclosures given to all RIA clients. It states that firms are required to list any criminal or administrative proceedings, self-regulatory organization matters, or criminal cases in which the company was alleged to have been involved in investment-related violations.
The guide says that “If there are any legal or disciplinary incidents that are material for a client or prospective client’s evaluation of your advisory firm or the integrity of management, you must disclose all relevant facts about those events.” You may, in certain circumstances, refute the notion that a disciplinary incident is a material. You are not required to reveal an event if it is non-material.
However, the SEC focuses on disclosure in all of its enforcement cases. The regulator has filed over 100 cases in the last several years involving other aspects such as Form ADV language or 42 that revolve around the new Form CSS, which is required by the SEC’s Regulation Best Interest. Edmiston, PIABA, stated that the regulator allows RIAs to disclose cases.
The rule is very simple. The firm must disclose material events and information. However, it is up to the firm what is important. He stated that self-interest is evident in this area, and materiality is very, very narrowly defined.” “One important fact that they didn’t disclose was that their advisors could just steal your money. It’s evident that this is not important.
It has 160 advisors and 60 offices that manage more than HTML3 billion in client assets. There are 140 accounting practices that are part of Integrated’s referral programme. Saganey, Cataldo did not contribute to Crossland’s settlement, as their BrokerCheck files reveal.
According to the same 17-word reference to the allegations in their BrokerCheck files, a plaintiff had accused Integrated of a nonspecific failure to supervise the actions of an advisor. The case was settled for $1 million by Crossland. Crossland filed a civil lawsuit that month in Boston federal court alleging that Integrated’s RIA had “embarked upon a malicious campaign of harassment and intimidation” against her.
The underlying case
Crossland first met Clason in 2015 when he was referred by other women to a beauty parlor. This is one of the places where he “often “recruited” female clients as “a handsome young man,” according to the lawsuit. Clason and the Connecticut resident with “significant health problems” developed a close relationship. He visited her up to five times a week, drove her around to medical appointments, and after a stroke, he received an appointment through his lawyer friend to be Crossland’s power of attorney and to act as her healthcare proxy. Clason also convinced her to open an account in a joint bank, saying that it would pay for living expenses like rent.
Federal prosecutors say that he transferred $668,000 from his investment accounts to the joint bank account between 2018 and 2020. Investigators claim that he later took $621,000 cash out of the account, paid his credit card bills, and transferred $5,000 directly into his personal holdings.
The complaint states that Clason’s crime was unproven and should have been easily detected by the defendants using reasonable care and diligence. “Tragically the defendants never questioned: (i). the sequential and almost total liquidation of the plaintiff’s multiple advisory accounts; (ii), dozens of wire transfers from the plaintiff’s advisory account to Clason’s account; or (iii). the inappropriately close personal relationship Clason has with his elderly client.
Clason was fired by Integrated’s RIA in August 2020. While citing the allegations, his BrokerCheck file shows. After Clason had consented in June to a partial judgment enjoining his violation of the Investment Advisers Act, the SEC filed a civil fraud case against him. The result was . After Clason refused to provide information, FINRA barred Clason from the market in September 2020. Clason also settled for $1 million. Clason had previously paid $12,965 to another client in March 2021, after he claimed he misrepresented certain products.
More legal wrangling after
According to Crossland’s lawsuit, Integrated’s chief lawyer attended Crossland’s SEC interview in August 2020. Attorneys for the RIA talked with Crossland “without counsel to elicit harmful and false testimony from her.” Clason or the RIA then hired a private investigator, who “gained unlawful access” to her residence and tried multiple times to speak with her.
According to the lawsuit, “The activity only stopped after plaintiff’s counsel threatened the judge presiding over SEC case and complained the Assistant United States Attorney who [was] looking into this matter for the Justice Department.”
Representatives from the Hartford U.S. attorney’s office declined to comment.
According to the complaint, Crossland filed a demand that arbitration is commenced against Integrated’s RIA under her account agreement. According to the complaint, Crossland filed a demand for arbitration with the American Arbitration Association against Integrated’s RIA in November 2020. This was necessary to prevent Crossland from having the right to file a court case. In January 2021, Integrated’s RIA filed a lawsuit against Crossland in Massachusetts Superior Court seeking an “improper” appeal from the arbitrator’s decision that the case should be tried according to its consumer rules.
According to the complaint, Integrated’s RIA “has not explained the legal basis of its actions, that are clearly designed [to] vex [the] plaintiffs and delay her right [to] seek compensation from [the] defendants,” the complaint states. The complaint claims that they “aggravated Crossland’s harm by interviewing her without her consent despite her being under adult protective services, (2) refusing to honor her account agreement by failing to pay various AAA fees, and (3) filing a baseless suit to harass her.”
Edmiston, PIABA, stated that if Crossland’s case was deemed a commercial rather than a consumer dispute, it would have increased the cost of filing it to between $20,000 and $40,000 per side. Instead of shifting the “virtually all” of the expense to Integrated. He and others have called for RIAs not to enforce client agreements that require them to resolve any disputes through AAA/JAMS. The case was settled by Integrated’s RIA within a month of Crossland’s federal lawsuit.
Edmiston stated that “they clearly failed in their supervision Mr. Clason.” “When the client brought up the problem, they acted in the best fiduciary capacity possible in trying to play with the arbitration agreement.