The U.S. Securities and Exchange Commission (SEC) has charged the investment advisory firm Westport Capital Markets LLC and its principal, Christopher E. McClure, with breaching their fiduciary duties and defrauding advisory clients.In its complaint, the SEC stated the company and McClure repeatedly invested clients’ funds in risky securities that resulted in hundreds of thousands of dollars in undisclosed markups for Westport Capital Markets but simultaneously resulted in more than $1 million in losses for the clients. As part of this endeavor, the SEC said the firm bought securities from underwriters at a discount from the public offering price and then resold those same securities to its advisory clients at higher prices without disclosing the markup. The complaint also charges the company and McClure with defrauding a client by disregarding the client’s express objectives and repeatedly investing the client in risky offerings that generated the hidden markups.
The complaint also alleges that Westport Capital Markets and McClure made false and misleading representations to clients related to the company’s compensation. Westport Capital Markets is charged with receiving undisclosed mutual fund distribution fees, known as 12b-1 fees, without disclosing the conflict of interest from this procedure. Clients funds were also invested in mutual funds with 12b-1 fees even when cheaper shares of the same funds were available without these fees, the SEC said in a statement.
The SEC’s complaint stated that the firm’s advisory clients paid approximately $780,000 in undisclosed markups and fees on top of the advisory fees they paid the firm. The SEC said its complaint “seeks injunctive relief, disgorgement of ill-gotten monetary gains plus interest, and penalties.”