Arete Wealth is urging the Securities and Exchange Commission to withdraw its recent complaint against the firm—and it’s using one of Donald Trump’s first acts as president as ammunition in its argument.
In a letter to Acting SEC Chair Mark Uyeda, Gavin Meyers, a partner at the law firm Pierson Ferdinand who is representing Arete, argued that the complaint and a press release detailing the charges should be withdrawn to “prevent further harm” to the firm and its clients.
Additionally, Arete accused SEC staff of “rushed efforts … to push through controversial enforcement actions in the final days of the prior administration and prior Commission leadership” and accused “senior staff” at its New York office of misconduct. According to Arete, the charges were retaliation for allegations it made against the agency.
The SEC filed its Arete complaint last Friday, one of the final enforcement actions before President Trump’s inauguration (and former SEC Chair Gary Gensler’s departure). In the complaint, the SEC accused Arete’s broker/dealer, advisory firm and chief compliance officer of allegedly covering over reps’ misconduct by urging clients to sign overly extensive liability waivers.
According to the SEC, several Arete reps sold clients shares of what investigators later discovered was a sham oil-and-gas securities scheme run by a man formerly convicted of securities fraud. The commission claimed the reps did so without Arete’s knowledge or permission and were paid with discounted stock rather than commissions.
After the firm found out, CCO Bob Chung oversaw client settlement agreements. However, the SEC alleged that many of the Arete clients’ settlement agreements included “false and misleading” statements and a broad (and allegedly illegal) liability waiver that the commission argued drastically overstepped the firm’s bounds.
But in the letter to Uyeda (and an accompanying press release), Arete argued that the commission had weaponized its enforcement power to cover up its own alleged sins.
While Arete asked clients to sign liability waivers, the firms said they were “standard” and did not change Arete’s fiduciary obligations. They only codified that the transactions concerning the sham company were separate from any relationship with Arete itself.
Arete claimed that it approached the commission in January 2020 with information about the sham oil-and-gas fraud and that the SEC staff did not shut down the scam then. According to Arete, the firm filed a whistleblower report about the inaction late last year and claims the SEC’s actions since are a form of retaliation. The press release contained statements they claimed went further than the charges in the complaint.
In the letter to Uyeda, Atkins cited an executive order signed by Trump this week to end the alleged “weaponization of government enforcement authority” as an indication the commission needed to withdraw the complaint.
The order accused the Biden administration of targeting “perceived political enemies” in an “unprecedented, third-world weaponization of prosecutorial power to upend the democratic process”. It directed executive agencies (including the Justice Department and the SEC) to examine their conduct over the past four years.
In the letter to Uyeda, Arete’s counsel argued that the executive order “underscores the necessity” of the commission withdrawing the complaint against the firm. (The SEC declined to comment, and Arete Wealth did not respond to additional questions.)
Max Schatzow, a partner with the firm RIA Lawyers, believed it was “unlikely” that the commission would withdraw the complaints across the board, noting the case against the Arete reps seems strong, as are the claims that Arete fell short on compliance measures (if the facts in the complaint were accurate).
While more firms may make claims tying enforcement actions to prior SEC leadership, he didn’t think there would be genuine concern at the agency that complaints would be withdrawn. Schatzow noted that, according to the federal charges against Richard Sterritt, who masterminded the scheme, an “undercover law enforcement agent” was working the case, which might be one of the reasons why it did not immediately end the scheme.
“I don’t fault Arete’s counsel for trying, but the broad allegations of New York Regional Office Staff impropriety without more specific allegations don’t seem like the things that would merit withdrawal or would cause a court to dismiss a case,” he said.
