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Texas regulator revokes registration of investment adviser, sanctions firm

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Texas regulator revokes registration of investment adviser, sanctions firm

Texas Securities Commissioner John Morgan on March 18 entereda disciplinary order revoking the registration of James Poe, a Fort Worth investmentadviser representative, for engaging in fraudulent practices and selling securitieswithout being properly registered, the Texas State Securities Board said March 21.

Additionally, Poe's investment advisory firm, , was sanctionedfor failing to disclose excessive fees.

The board's investigation found that between July 2011 and August2015, Poe sold life settlement investments that promised investors a 75% return.The life settlements were issued by SRP-LS200 LLC, an entity Poe controlled. Poewas not registered as a dealer when he sold the life settlement investments.

While investors in the life settlements were informed in writingthat their investments would be used to pay all associated costs, there was no writtendisclosure specifying the types of such costs. It emerged from the probe that thecosts included a 10% commission paid to Poe and to International Alternatives PRLLC, another entity that Poe owned, for consulting on those investments. Investorswere neither informed of the payments to International Alternatives, nor of Poe'sownership in International Alternatives. International Alternatives took in 20%of the funds raised from investors, according to the board.

The probe also found that in 2011, Jim Poe & Associates chargeda 10% annual management fee to non-qualified clients — clients who did not meetcertain minimum financial requirements. In 2013, the company lowered this annualmanagement fee to 6% and continued to charge it until January 2015. State SecuritiesBoard rules require that a registered investment adviser charging 3% or more ofa client's AUM tell the client that the fee is higher than industry norms and thesame services can be obtained for lower fees elsewhere. Jim Poe & Associatesviolated these rules by not informing clients of the excessive fees.

State Securities Board rules also prohibit investment advisersfrom having custody of client funds unless safeguards are in place to make clientsaware of the arrangement and the adviser's control of client funds. Poe violatedthe rules as he had authority over SRP-LS200's bank accounts to which investorsin the life settlements wired their funds, indicating that Jim Poe & Associateshad custody of those assets.

The disciplinary order also requires Jim Poe & Associatesto establish procedures to ensure Poe does not act as dealer, agent or investmentadviser representative. Poe & Associates must also retain an outside complianceconsultant to perform reviews of the firm.