The SEC’s Main Street, Senior Investor Focus

The Commission has repeatedly emphasized its focus on the main street, retail investor in recent years. Specifically, while the agency has sought to protect all investors, a key concern has been seniors and retirees who are often victimized by the unscrupulous, loosing much, if not all, of their retirement savings. Its most recent case in this area is, perhaps, emblematic of this focus, SEC v. Burroughs, Civil Action No. 3:19-cv-01913 (D. Conn. Filed Dec. 4, 2019).

Defendant Lester Burroughs has been employed as either an investment adviser representative or an investment adviser for years. Beginning in November 2012, he implemented a scheme which targeted seniors, enticing them to invest in instruments he called a Guaranteed Interest Contract. The Contract, or GIC, was represented to pay a guaranteed return for the life of the contract of either 4% or 7% per year. This Contract would thus pay a safe, guaranteed and above market return.

Over a period of several years Mr. Burroughs sold a number of the Guaranteed Interest Contracts to seniors. For example, between 2012 and 2017 Client A made purchases of $370,00, $152,081 and $445,000. At one point Mr. Burroughs provided the elderly client with a statement from a well-known insurance company. Client A did in fact receive payments purported to be made under the Contract.

Clients B, C and D also purchased GICs. Over an 18 month period, beginning in June 2017, for example, Mr. Burroughs convicted Clients B, C and D to invest about $560,000 in the Contracts. Later he convinced Client B, now 83, to deposit another $50,000 in an account controlled by Mr. Burroughs.

Client C opened an individual retirement account advised by Mr. Burroughs. The funds were taken from the client’s retirement savings plan – the client planned to retire in two years. Subsequently, Client C was convinced to transfer $50,000 to invest in a two-year GIC paying 4%. And, in July 2014 Client D opened an advisory account with Mr. Burrough’s firm, depositing over time about $405,000.

Most of the funds deposited by Client D were used to pay obligations to the other clients. Portions of the money were misappropriated by Mr. Burroughs. Similarly, the payments made to Client A were funded by other clients. In fact, none of the client money was ever actually invested in a Guaranteed Interest Contract. Portions of the client funds were misappropriated or used to repay others. The documents shown to Client A from a well-known insurance company were false. Mr. Burroughs, of course, profited.

The Commission’s complaint alleges violations of Advisers Act Sections 206(1) and 206(2). The case is pending. See Lit. Rel. No. 24681 (Dec. 5, 2019). The U.S. Attorney’s Office for the Southern District of Connecticut filed a parallel criminal action.