The Securities and Exchange Commission (SEC) charged Interinvest Corporation, Inc. and its founder Hans Peter Black for investing over $17 million of client assets in penny stocks without disclosing his business and financial interests. According to the agency, the alleged fraud resulted in unrealized losses of over $12 million in Interinvest client accounts.
Black invested in four Canadian companies
The SEC announced fraud charges against Interinvest Corporation and Black on Wednesday. The SEC said the firm and its owner invested over $17 million worth of client assets in penny stocks while failing to disclose at the time that he served on the board of directors of the companies and that those companies paid him $1.7 million in expenses.
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Regulators alleged that clients at Interinvest Corporation, a Boston-based financial advisory firm, may have lost as much as $12 million of their $17 million investment based on the recent trading history of shares in the penny stock companies, some of which are purportedly in the business of exploring for gold or other minerals.
The SEC said Black made misrepresentations concerning the character of the Canadian penny stock company investments, ignored client instructions, and knowingly and deceptively diverted from a conservative investment strategy that Interinvest promoted and its clients expected. The agency also alleged that Interinvest and its founder perpetuated their fraud and placed Interinvest’s client funds at further risk by ignoring warning signals concerning Black’s conflicts of interest and by continuing to operate without remediating acknowledged control deficiencies.
Black terms SEC’s allegations “totally outrageous”
However, Black called the SEC’s allegations “totally outrageous,” noting that his board memberships, including the four mentioned in the SEC complaint, are listed in his public disclosures on the regulator’s website. He clarified that that $1.7 million in expenses were travel, hotel and conference reimbursements over several years.
The founder said: “We have a history of dealing with smaller-cap companies,” some of which he said generated “very good returns for our clients.”
Responding to the SEC’s allegation that his firm stonewalled its investigation, Black said, “We have spoken to the SEC multiple times,” adding that he had recently undergone surgery, of which he informed the SEC.
The SEC unearthed the alleged violations in an examination of the firm. The regulator’s complaint was filed late Tuesday in federal court in Boston. It seeks a court order to freeze Interinvest’s assets and prohibit the firm and Black from continuing to exercise investment authority over client assets under management.
Paul G. Levenson, Director of the SEC’s Boston Regional Office said, “Investment advisers have a duty to put their clients’ interests first and fully disclose all conflicts of interest.”
The SEC alleged that Interinvest, a Massachusetts corporation, and Black’s conduct has involved fraud, deceit, or deliberate or reckless disregard of regulatory requirements and has resulted in substantial loss, or significant risk of substantial loss, to other persons. The regulator’s complaint alleged that Interinvest and Black violated the anti-fraud and related provisions of federal securities laws. Besides emergency relief, the SEC’s complaint seeks to permanently bar Interinvest and Black from violating securities laws and require them to repay allegedly ill-gotten gains with interest and penalties.