• November 8, 2023
• David A Noyes & Co.

Scott Wolfrum (CRD#: 2187550) is a registered Investment Advisor at Wolfrum and Co., in Indianapolis, IN.

Broker’s Background

He entered the securities industry in 1991 and he previously worked for Huntleigh Securities Corporation; Noyes Advisors LLC; David A. Noyes & Company; Wells Fargo Advisors Financial Nework, LLC; Wells Fargo Advisors, LLC; A.G Edwards & Sons, Inc; and Merril Lynch, Pierce, Fenner & Smith Incorporated.

Current and Past Allegations of Conduct Leading to Investment Loss

According to publicly available records released by the U.S Securities and Exchange Commission (SEC), In March 2021, the SEC deemed it appropriate and in the public interest that public administrative and cease-and-desist proceedings be instituted pursuant to Section 15(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Sections 203(f) and 203(k) of the Investment Advisers Act of 1940 (“Advisers Act”), against Scott T. Wolfrum (“Respondent”).

The Commission found that these proceedings arose out of investment adviser Scott Wolfrum’s failure to disclose conflicts of interest when recommending that his advisory clients invest in Foundry Mezzanine Opportunity Fund (“FMOF” or the “Fund”), a private fund that provides lending to and invests in small businesses. From December 2015 to June 2018 (“Relevant Period”), Wolfrum sold more than $20 million in interests in FMOF, almost all of which were recommended by Wolfrum and sold to his advisory clients. Wolfrum failed to disclose to his clients the conflicts of interest created by his and his family members’ financial interests in two of the Fund’s holdings and Wolfrum’s receipt of $140,125 in finder’s fees for facilitating two different investments by the Fund.

As a result, the SEC ordered cease-and-desist sanctions, civil and administrative penalties/fines in the amount of $75,000, disgorgement in the amount of $140,125, and monetary penalties in the amount of $21,354.

In addition, Scott Wolfrum has been the subject of several other disclosures, which include the following:

• June 2022– “ Client alleges inadequate due diligence for 2015 investment.” The customer dispute is pending and the damage amount requested is $50,000.
• December 2021—“ Customer alleges selling of unsuitable investments beginning in 2008.” The damage amount requested was $11,000,000, and the customer dispute settled for $2,650,000.
• July 2021—“ Improper Investment Recommendation for products purchased in 2016.” The customer dispute settled for $15,000.
• March 2019—“ Complainant alleges that the purchase of a private placement was made without complainant’s approval. Date of activity was 01/11/2018.” The damage amount requested was $500,000 and the customer dispute settled for $449,300.
• February 2013—“ CLIENT ALLEGED ANNUITY UNSUITABLE AND CONCENTRATION OF ANNUITIES IN ACCOUNT. (1/27/12-2/6/13).” The damage amount requested was $21,205.35 and the customer dispute settled for $10,000.
• December 2008—“ CLIENT ALLEGES THAT INSTRUCTIONS TO MOVE TO A CASH POSITION ON 9/26/2008 WERE NOT FOLLOWED.” The customer dispute was denied.
• September 1996—“ It was alleged that I photocopied a signature on an informal agreement.” He was discharged from Merrill Lynch, Pierce, Fenner & Smith Inc.

 

For a copy of Scott Wolfrum’s SEC Advisor disclosures, click here.

 

We Help Investors Recover Investment Losses

Pursuant to FINRA Rule 3270, outside business activities in which Financial Advisors become involved must be disclosed.  This is in order to ensure that Financial Advisors do not engage in selling away.  The Financial Industry Regulatory Authority (FINRA) strictly prohibits financial advisors from “selling away” or selling securities and investments to clients that are not offered by the brokerage firm with which they are employed. For example, it is illegal and a violation of industry rules for a financial advisor to recommend or even suggest that a client invest in the financial advisor’s own business or a business operated by his or her friends or family. It is not necessary that the financial advisor earn any compensation for recommending an outside investment.

 

The purpose behind this prohibition is to ensure that a financial advisor only offers to sell securities that have been vetted by his or her employer brokerage firm through a rigorous due diligence process. Most brokerage firms have an approved list of investments, products, and research that can be provided or made available to clients. Any deviation by the financial advisor from the approved product list may constitute selling away.

 

Financial advisors have a legal and regulatory obligation to recommend only suitable investments that are appropriate for their clients’ needs and objectives. Their employing brokerage firm has a legal and regulatory obligation to supervise the Financial Advisors’ sales practices and dealings with clients. To the extent any of these duties are breached, the customer may be entitled to a recovery of his or her investment losses.

 

Reasonable basis suitability requires that a recommended investment or investment strategy be suitable or appropriate for at least some investors. Reasonable basis suitability requires an advisor to conduct adequate due diligence so that he or she can determine the risks and rewards of the investment or investment strategy.

 

Quantitative suitability requires a brokerage firm or financial advisor with actual or de facto control over a customer’s account to have a reasonable basis for believing that a series of recommended transactions – even if suitable when viewed in isolation – is not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile. No single test defines excessive activity, but factors such as the turnover rate, the cost-equity ratio, and the use of in-and-out trading in a customer’s account may provide a basis for a finding that a member or associated person has violated the quantitative suitability obligation.

 

Customer-specific suitability requires that a member or associated person have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer’s investment profile. Among the criteria that a financial advisor must evaluate to satisfy his or her customer-specific suitability obligations include the investor’s age, tax status, time horizon, liquidity needs, and risk tolerance; a client’s other investments, financial situation and needs, investment objectives, and any other information disclosed by the customer should also be considered.

 

The Wolper Law Firm represents investors nationwide in securities litigation and arbitration on a contingency fee basis. Matt Wolper, the Managing Principal of the Wolper Law Firm, is a trial lawyer who has handled hundreds of securities cases during his career involving a wide range of products, strategies and securities. Prior to representing investors, he was a partner with a national law firm, where he represented some of the largest banks and brokerage firms in the world in securities matters. We can be reached at (800) 931-8452 or by email at mwolper@wolperlawfirm.com.