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Securities and Exchange Commission v. Warren D. Nadel et al., Civil Action No. 11-cv-0215
SEC Obtains Summary Judgment Against Warren D. Nadel, His Broker-Dealer and His Investment Advisory Firm
The U.S. Securities and Exchange Commission recently announced that on April 2, 2015, the United States District Court for the Eastern District of New York granted the SEC’s motion for partial summary judgment against Defendants Warren D. Nadel, his broker-dealer, Warren D. Nadel & Co. (WDNC), and his investment advisory firm Registered Investment Advisors, LLC , while also denying the Defendants’ motion for summary judgment in its entirety. The Securities and Exchange Commission filed its civil action on January 13, 2011, alleging that the Defendants fraudulently induced clients to invest tens of millions of dollars in a purported investment program in order to receive over $8 million in commissions and fees from 2007 through 2009. The Complaint alleged, among other things, that the Defendants inflated the amount of assets they held under management, and repeatedly misrepresented to clients and prospective clients that they were executing open-market transactions on their behalf with other broker-dealer, when in fact, in the vast majority of transactions (numbering in the thousands), the trades consisted of cross trades between advisory client accounts, controlled by Defendants, or in principal transactions with his own firm, at prices determined by Nadel himself.
In its Order granting the Commission’s motion, and denying Defendants’ motion in its entirety, the Court held that the Commission was entitled to judgment as a matter of law on its claims that Defendants violated (1) Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, by deliberately inflating the amount of assets they had under management by a factor of 300% to 600%; (2) Section 206(3) of the Advisers Act, by conducting thousands of cross-trades among their clients, and principal transactions with client accounts, without notifying and obtaining consent from their clients in advance of each of those transactions that they were cross-trades or principal transactions; and (3) Rule 10b-10 of the Exchange Act, because Nadel and WDNC falsely disclosed to their clients the capacity under which WDNC was acting in their cross trades and principal transactions.
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