The U.S. Securities and Exchange Commission (SEC) recently filed a suit against Michael Sztrom and David Sztrom, a father-son duo behind Sztrom Wealth Management Inc., a California wealth management firm based in San Diego, California.
The SEC accuses the father of impersonating his son David to advise clients notwithstanding being banned from broker-dealer platforms — violating the Investment Advisers Act.
Sztrom Was Providing Financial Advice Without a APA Regulation
According to the investigation, from November 2015-March 2018, Mr. Sztrom and his son breached their fiduciary duties and deceived clients.
Authorities also explained that Michael Sztrom was providing investment advice through Advanced Practice Advisors LLC (APA), without being associated or regulated by APA or any other entity.
Michael Sztrom worked for UBS Financial Services Inc. until 2015, a year in which he was the subject of an investigation by the Financial Industry Regulatory Authority (FINRA) and was involved in three customer dispute settlements in 2014 & 2015.
After 2015, Mr. Sztrom moved most of his advisory clients to Charles Schwab & Co. However, the firm prohibited him from using its brokerage platform due to the FINRA investigation, so he contacted APA.
Sztrom Deceived APA By Impersonating His Son
However, based on the complaint, APA’s CEO agreed to associate only with David Sztrom, and Michael Sztrom would only serve clients as a financial planner. But there was no formal agreement about his position.
According to the authorities, from November 2015-May 2016, Michael Sztrom impersonated his son and purported to be associated with APA. He also regularly researched possible investments using his son’s access to platforms belonging to brokerage firms even though he was explicitly prohibited from doing so.
Mr. Sztrom also omitted to inform clients that he was banned from performing trades in client accounts.
Sztrom’s Actions Caused APA To Lose Their Largest Client
In May 2016, Schwab called APA’s CEO and informed him of Michael Sztrom’s alleged impersonation and terminated its relationship with APA the following month.
At least four clients ended their relationship with the Sztroms after Schwab ended its relationship with APA, including the CEO’s largest client.
The complaint involves counts of fraud by an investment adviser and aiding and abetting fraud by an investment adviser. The agency is also seeking civil penalties and judgments enjoining the defendants from committing their claimed violations of the Advisers Act.
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