SEC Issues Cease and Desist Resolution Against Investment Advisor Scott Wolfrum Alleging Conflict of Interest
Scott Wolfrum (CRD#: 2187550) is an Investment Advisor and previously registered Broker at Huntleigh Securities Corporation in Indianapolis, IN. He entered the securities industry in 1991 and previously worked for David A. Noyes & Company; WellsFargo Advisors Financial Network, LLC; WellsFargo Advisors, LLC; A.G. Edwards & Sons, Inc.; and Merrill Lynch, Pierce, Fenner & Smith, Incorporated.
According to publicly available records released by the Financial Industry Regulatory Authority (FINRA), in March 2021, the United States Securities and Exchange Commission (U.S. SEC) issued a cease and desist order against Scott Wolfrum; censured him; levied a civil and administrative penalty of $75,000, and a disgorgement of $140,125, and a penalty of $21,354. The U.S. SEC allegation states, “The Securities and Exchange Commission (“Commission”) deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, 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 finds that these proceedings arise 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.”
In addition, Scott Wolfrum has been the subject of three customer complaints, including the following:
● 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 customer dispute was settled for $449,300.
● February 2013–”CLIENT ALLEGED ANNUITY UNSUITABLE AND CONCENTRATION OF ANNUITIES IN ACCOUNT. (1/27/12-2/6/13).” The customer dispute was 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–”Not Provided IT WAS ALLEGED THAT I PHOTOCOPIED A SIGNATURE ON AN INFORMAL AGREEMENT.” Scott Wolfrum was discharged from Merrill Lynch, Pierce, Fenner & Smith, Incorporated.
For a copy of Scott Wolfrum’s FINRA BrokerCheck, click here.
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.
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