A Massachusetts-based investment advisor could face a lengthy prison sentence after being charged with defrauding a number of clients of more than $2.8 million over the span of more than a decade, the Department of Justice announced Wednesday.
The Securities and Exchange Commission filed parallel charges against James Couture, of Sutton, Mass., arguing that he ran a scheme in which he encouraged advisory clients to sell parts of their securities holdings to fund transfers into a third-party entity that he controlled. Couture assured investors their funds would be reinvested to boost their returns, but he instead used them for his own personal and business expenses, the SEC claims.
Couture was the owner and founder of the Private Wealth Management Group, which was not registered with the SEC or any state regulators, according to the complaint. From February 2009 until he was discharged in June 2020, Couture was an investment advisor and registered rep at LPL Financial, managing about $150 million in client assets as of the end of 2019. LPL terminated him in June 2020, and he was barred by the Financial Industry Regulatory Authority in October 2020.
Couture would often advise clients to invest funds in subaccounts managed by an unnamed third-party subadvisor that LPL authorized for use on its platform. According to the agreements, he had “full authorization” to instruct the subadvisor on changes to account management, and also had authorization to make certain types of withdrawals. According to the SEC, he began convincing clients to sell parts of these holdings to fund transfers to “Legacy Financial Group,” claiming he would then reinvest the funds for greater profits.
“Unbeknownst to his clients, Couture had formed Legacy Financial Group in 2009 and exercised ownership and control over the entity and its bank accounts,” the SEC complaint read. “Neither LPL, nor the sub-advisor had authorized Couture to use Legacy Financial Group as a third-party advisor.”
According to the SEC, Couture would set up fake client authorizations directing the subadvisor to send checks to him, which he would then deposit into a Legacy Financial bank account and use the money for himself. When clients wanted the return on their investments, the advisor would use assets from other clients to pay them in a Ponzi-like fashion, and the clients remained unaware he was using clients’ funds to pay the returns of other investors, the SEC argued.
In the case of an unnamed married couple from Nashua, N.H., Couture misappropriated about $700,000 by directing them to authorize a withdrawal from their subadvisor accounts to fund transfers into Legacy Financial. Couture never intended to reinvest those funds and used a piece of it to purchase a book of advisory clients from a separate advisor to further boost his own business. Legacy Financial was formed as an LLC in New Hampshire, but the New Hampshire Department of State administratively dissolved it in August 2013, according to the SEC.
An attorney for Couture declined to comment, and LPL did not return a request for comment as of press time.
Couture faces federal charges of wire fraud and aggravated identity theft in Massachusetts federal court. Each wire fraud charge provides a maximum sentence of as much as 20 years in prison, with three years of supervised release and a $250,000 fine, or twice the gross gain and loss of the offense if that is the greater sum. The identity theft charge would include a two-year sentence served consecutively with other prison time.
