Sec. & Exch. Comm'n v. Duncan
| Decision Date | 15 September 2021 |
| Docket Number | 3:19-cv-11735-KAR |
| Parties | SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. RICHARD DUNCAN, Defendant. |
| Court | U.S. District Court — District of Massachusetts |
FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER
The Securities and Exchange Commission ("SEC") brought a civil enforcement action against Richard Duncan ("Defendant"), a former registered investment adviser, for engaging in fraudulent and deceptive conduct in violation of §§ 206(1) and 206(2) ("Section 206(1)" and "Section 206(2)") of the Investment Advisers Act of 1940 ("Advisers Act") 15 U.S.C. §§ 80b-6 (1), (2). The SEC claimed that Defendant violated the Advisers Act by soliciting his advisory clients' investments in an advance-fee scam involving an alleged woman in Turkey and her purported six-million-dollar inheritance ("Turkish investment" or "Turkish deal"). The parties have consented to this court's jurisdiction (Dkt. No. 43). See 28 U.S.C. § 636(c); Fed.R.Civ.P. 73. After conducting a bench trial at which Defendant proceeded pro se and reviewing the trial testimony, exhibits, and the parties' post-trial submissions, the court finds that Defendant violated Sections 206(1) and 206(2) of the Advisers Act.
Following a bench trial, "the court shall find the facts specifically and state separately its conclusions of law thereon," before entering judgment. Fed.R.Civ.P. 52(a); see also Cafe La France, Inc. v. Schneider Securities, Inc., 281 F.Supp.2d 361, 363 (D.R.I. 2003). The court weighs the credibility of the witnesses in making its factual findings. See Fed. R. Civ. P. 52(a); see also Gautieri v. United States, 167 F.Supp.2d 207, 209 (D.R.I. 2001).
Defendant began his career as an investment adviser in September 1972 (Tr. I at 143).[1]He worked at Bradway Financial ("Bradway") before joining Ausdal Financial Partners, Inc. ("Ausdal") in April 2017 (Tr. I. at 143-44). Both firms were registered with the SEC. As a registered investment adviser, Defendant had fiduciary obligations to his clients that were mandated by the SEC and by Ausdal's Compliance Policies & Procedures Manual and Code of Ethics (Tr. I at 10-13; Exhibit 2). Defendant owed his clients a duty of care, which required him to act in his clients' best interest at all times, and a duty of loyalty, which meant that he was required to put his clients' interests first and either avoid conflicts of interest or make full and fair disclosure of all material conflicts to his clients, the public, and his employer (Tr. I at 13-14, 93-94).
During the summer of 2016 while Defendant was waiting to be ferried to his sail boat in Newport, Rhode Island, he provided his contact information to two men whose names he did not know (Tr. I at 46, 118). Thereafter, Defendant received an e-mail message from someone claiming to be a woman in Turkey named Janet Marck who had allegedly inherited $6 million dollars in United States currency from her father (Tr. I at 116-17). The money was being held by AKBank in Turkey (Tr. I at 116-17). Marck represented that she needed Defendant's financial assistance to move from Turkey to the United States and to transfer her inheritance from AKBank (Tr. I at 46). In return for Defendant's monetary contributions, Marck told Defendant that he would manage her $6 million inheritance after it arrived in the United States (Tr. I at 46, 155). Because Defendant's compensation as an investment adviser was based on the value of the assets he managed, he found the possibility of managing Marck's funds to be "pretty attractive" (Tr. I at 126-27, 145).
Defendant and the person claiming to be Marck continued to exchange e-mail communications during the summer of 2016 (Tr. I at 120). They never spoke by telephone or in person (Tr. I at 174). Defendant found Marck to be "extremely bright," "very fun," and "a pretty solid person" (Tr. I at 120, 175). Defendant developed "feelings" for Marck in the fall of 2016, shortly after they began exchanging e-mails, and he hoped that their romantic relationship would develop further when she reached the United States (Tr. I at 120-21; Tr. II at 38).
An August 25, 2016 e-mail message from Marck to Defendant included a copy of a document from the "High Court of Justice, 12-13 Taylor Road, Istanbul, Turkey" which allegedly granted Defendant the power of attorney over Marck's "family treasure" (Exhibit 60). By granting Defendant the power of attorney, Marck purportedly "empowered [Defendant] to be the custodian of the said fund when it is finally cleared from the AKBank to his bank account in the United States of America" (Exhibit 60). Defendant did not conduct an internet search of the term "High Court of Justice" (Tr. II at 25). If he had conducted such a query, he would have found that the court did not exist in Turkey (Tr. II at 25).
The next day, August 26, 2016, Defendant received an e-mail message from "Barrister Richard Morgan" of Istanbul who Defendant believed was Marck's family's attorney (Tr. II at 18; Exhibit 62). Defendant thought that Morgan obtained his contact information from the two men he met in Newport (Tr. I at 118). Morgan's e-mail address was richardmorganchambers@mail.com (Exhibit 62). Notwithstanding the unusual email suffix of "@mail.com" and the misspelling of "Practitoners" in the e-mail messages that Defendant received from Morgan on August 26 and 27, 2016 and January 11 and March 12, 2017, Defendant did not search the internet for "Barrister Richard Morgan" or his alleged law firm, "Morgan & Co. Legal Practitioners" (Tr. II at 18-19, 22; Exhibits 52, 54, 62, 63). Consequently, Defendant was unaware that internet searches of "Barrister Richard Morgan" and "Richard Morgan Chambers" warned of a scam associated with those names and that there was no internet record of a "Morgan & Co." law firm in Istanbul (Tr. II at 20). Morgan never answered Defendant's phone calls during 2016 and 2017 (Tr. I at 176). The court does not credit Defendant's testimony that Morgan answers his calls now (Tr. I at 175).
Morgan's August 27, 2016, e-mail to Defendant indicated that Defendant was required to pay $19, 400 for an "insurance clearance certificate" as the "last stage of the whole legal procedure" to move Marck's inheritance from AKBank to Defendant's account in the United States (Exhibit 63). Morgan directed Defendant to transfer the funds "immediately" (Exhibit 63).
Defendant did the "necessary soul searching" and decided, based on his e-mail exchanges with Marck, that he could trust her (Tr. I at 168). He did not make inquiries about her or her assets (Tr. I at 173, 175). Instead, he relied on an account statement purportedly e-mailed to him from AKBank in Istanbul as proof that Marck had $8 million in an AKBank account in June 2017 (Tr. I at 173; Exhibit 53 at 2). That statement was signed by "Woodrow Wilson, Director of International Wire Transfer" (Exhibit 53 at 2).
Defendant began sending his personal funds to Turkey in August or September 2016 (Tr. II at 32, 71; Tr. III at 39). Notwithstanding Berkshire Bank's warning of a potential fraud when Defendant made the first transfer to Turkey from his Berkshire Bank account, he continued sending money to purported Turkish parties thereafter (Tr. II at 16-17, 71; Tr. III at 39).
On September 22, 2016, Defendant e-mailed AKBank in Turkey indicating that he had the power of attorney and asking for instructions on how to move Marck's $6 million dollar inheritance to his TD Ameritrade account (Exhibit 64). Defendant contacted AKBank again on October 2, 2016 because he had not received a response to his earlier e-mail (Exhibit 65). On November 8, 2016, Defendant received an e-mail message from "Philip Longman" of AKBank's "International Banking and Remittance Department" with an e-mail address of akbankintremittancedept@email.com (Exhibit 68). Defendant did not look up the e-mail address on the message (Tr. II at 14). If he had inquired, he would have learned that AKBank's actual employee e-mail addresses ended in the suffix "@akbank.com" (Tr. II at 14).
The November 8, 2016 message that Defendant received from Longman indicated that Defendant had not wired sufficient funds to transfer Marck's money to his Bank of America account (Exhibit 68). Defendant's e-mail messages to AKBank and Longman on November 23, 2016 and December 13 and 15, 2016 indicated that Defendant had provided a total of $15, 000 to Marck and Morgan for the "transfer charge" but he had not received a promised payment of $500, 000 from AKBank and had not heard from Longman "as usual" (Tr. II at 27-29; Exhibits 56, 69, 70). I do not credit Defendant's trial testimony that he and Longman spoke by phone when they first exchanged e-mail communications (Tr. I at 176-77, 179).
Defendant's financial records indicate that he sent at least $32, 000 to Turkey via wire transfers and MoneyGram transactions between August and December 2016 (Tr. II at 71; Tr. III at 39). He received nothing in return (Tr. II at 17-18).
On January 6, 2017, Longman of AKBank notified Defendant that it would cost an additional $15, 800 for payment of an "Internal Revenue Tax" that Longman represented was "the very last cost to have the inheritance funds transferred" (Exhibit 51). AKBank's website did not list a bank branch at the address displayed on the e-mail message (Tr. II at 14-15; Exhibit 51). In response to Longman's message, Defendant noted that the "initial agreement" indicated that he would pay an $8, 000 transfer fee and would receive $500, 000 in return (Tr. II at 16-17; Exhibit 51). In fact, he had paid $15, 000, but he had...
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