SEC Charges Arete Wealth Broker-Dealer and Advisory Firms, Their Chief Compliance Officer, and Several Representatives in Connection With Illegal Securities Offering

The Securities and Exchange Commission today announced charges against Joey Miller, Jeff Larson, and Randy Larson, formerly dually registered personnel with Arete Wealth Management LLC, a broker-dealer, and Arete Wealth Advisors LLC, an affiliated investment adviser, for fraud, registration violations, and aiding and abetting Arete Wealth Management's recordkeeping violations. The SEC also charged Arete Wealth Advisors and its Chief Compliance Officer and General Counsel, UnBo (Bob) Chung, with various violations of the federal securities laws related to a coverup of the representatives' allegedly fraudulent conduct and other compliance failures, and charged Arete Wealth Management with recordkeeping violations.

The SEC's charges stem from a previously-described scheme in which Richard Dale Sterritt, Jr. and six others allegedly defrauded investors through a sham oil-and-gas company, Zona Energy Inc. The complaint alleges that from approximately October 2018 to May 2020, despite the fact that Arete had not approved Zona securities for offer and sale, Miller, Jeff Larson, and Randy Larson sold more than $8 million worth of Zona shares to many of their Arete clients and customers, a practice called "selling away," which is prohibited by securities laws. The three defendants, as alleged in the complaint, tried to hide the sales by communicating through means not subject to surveillance by Arete, such as through personal phones and email. According to the SEC's complaint, Miller and Jeff Larson frequently made false and misleading statements to prospective Zona investors and, in return for their fundraising efforts, Sterritt sold them deeply discounted Zona shares.

According to the complaint, after Chung and Arete management learned that many clients of Miller, Jeff Larson, and Randy Larson had invested in Zona, Chung and Arete ordered the three to obtain settlement agreements releasing the Arete entities and their management from liability relating to Zona. However, the settlement agreements ultimately signed by more than 100 Arete clients-which Chung claims that he did not read-allegedly contained false and misleading statements as well as an illegal broad liability disclaimer that could lead a client to incorrectly believe that the client had waived non-waivable causes of action against the adviser, thereby further victimizing already defrauded investors.

The SEC also announced settled charges against Michael Sealy for allegedly acting as an unregistered broker-dealer in connection with his efforts to sell Zona shares. Without admitting or denying the SEC's findings, Sealy agreed to cease and desist from violations of the charged provision, to pay a civil money penalty of $200,000, and to be suspended from participating in an offering of a penny stock for a period of 12 months.

"As alleged in this case, after Arete's personnel defrauded investors, Arete, as aided by Chung, compounded the harm to these investors by having them sign releases that were false and misleading," said Sam Waldon, Acting Deputy Director of the Division of Enforcement. "Today's action is a reminder to gatekeepers that if you find potential evidence of misconduct and take steps to cover it up, you may expose yourself to liability."

The SEC's complaint, filed in the U.S. District Court for the Northern District of Illinois, charges Miller, Jeff Larson, and Randy Larson with violations of the registration, recordkeeping, and anti-fraud provisions of the federal securities laws and related rules, and seeks permanent injunctions, conduct-based injunctions, officer-and-director bars, penny stock bars, and civil penalties. The SEC's complaint also charges Arete Wealth Advisors with violations of the antifraud and compliance rule provisions of the Investment Advisers Act of 1940, charges Chung with aiding and abetting the antifraud and compliance rule violations by Arete Wealth Advisors, and charges Arete Wealth Management with violating certain recordkeeping provisions of the Securities Exchange Act of 1934.

The SEC's investigation is being conducted by Theresa H. Gue, Austin Thompson, Christopher Ferrante, Christine D. Ely, and Alison R. Levine under the supervision of Sheldon L. Pollock of the SEC's New York Regional Office. The SEC's litigation will be led by Oren Gleich and supervised by Preethi Krishnamurthy of the New York Regional Office.

The SEC appreciates the assistance of the U.S. Attorney's Office for the Eastern District of New York, the FBI, and the Financial Industry Regulatory Authority.