Matthew Clason: SEC Alleges $300,000 Theft from Client
On September 1, 2020, the SEC filed an emergency action stating that Matthew Clason, of Cheshire, Connecticut, stole a total of $300,000 from one of his clients. The Client is a 73-year-old retired woman with whom Clason had a joint bank account. In this emergency action, the SEC sought to freeze Clason’s assets. As of the SEC filing, Clason is still a joint signatory on the Client’s account, and therefore still has access to her money.
Motions to freeze assets are designed to keep the status quo and ensure that the defendant does not move their assets to places that are inaccessible to the court’s jurisdiction — for example, by moving them to a different country. Plaintiffs do this when they want to make sure their defrauded client can recover their money. In this case, the SEC is seeking disgorgement (which means the return of money taken illegally), as well as civil penalties that the SEC uses to punish brokers for violating their rules.
As her investment advisor, Clason was in charge of the securities in the Client’s investment account. The SEC stated in their emergency action that on numerous occasions, Clason sold securities in the Client’s accounts without her knowledge or approval. According to the Complaint, Clason then transferred the proceeds from the sales to their shared bank account. Once in their shared account, Clason allegedly withdrew cash, which the Client never received. According to the SEC, as of August 13, 2020, Clason had at least $8,200 of the Client’s money in his home.
The SEC’s Civil Action also alleges that the pattern of Matthew Clason’s withdraws suggest he did not want to alert authorities. The Complaint notes that Clason stole a total of $300,000 by making a series of withdraws, each under $10,000. This is notable because it suggests an effort to avoid scrutiny, since banks are required by law to report any cash transaction over $10,000 to federal authorities.
Why would Clason and his Client have a shared bank account? According to the SEC, Clason had access to the account for the purpose of making investments and paying miscellaneous monthly expenses. Additionally, the Client clearly placed considerable trust in Clason. The SEC alleges that Clason developed a personal relationship with his Client, stating in the Complaint that he drove her to various appointments and ran errands for her. This would have been particularly helpful, since the client does not drive and has limited mobility. The Client allegedly considered Clason a “good friend,” and they would sometimes meet as many as 5 times per week. The Client also allegedly trusted Clason to make withdraws for her, occasionally asking him to bring her a few hundred dollars at a time. Other than that, the complaint states, the Client understood that any withdraws Clason made would be for investment purposes.
Unfortunately, Clason isn’t the first investment advisor to commit this type of fraud against a senior client. Financial exploitation of older adults is a well-known issue in the securities industry, and various government entities have published guidelines designed to prevent elder financial exploitation. Still, “Elder abuse” is among the top 15 most common customer arbitrations, according to FINRA’s dispute resolution statistics. These cases often feature advisors and clients with relationships similar to the one Clason cultivated with his client, where the Client considers the advisor to be a trustworthy friend in addition to a financial advisor.
Most people don’t need it explained why what Clason allegedly did violates US law and SEC regulations. But there are some finer points to his alleged theft from the point of view of the SEC. Clason allegedly violated the “Adviser’s Act” under US Code § 80b–6. This code applies because Clason was acting as an investment advisor — in other words, someone who is responsible for providing accurate information about the advisability of certain investments. Stockbrokers’ duties, on the other hand, only cover the execution of trades. The “Adviser’s Act” requires advisers to disclose to their clients when they sell a security, which Clason allegedly did not do.
Clason also allegedly violated his obligations as a fiduciary. As a fiduciary, Clason is required to act in his client’s best interests. (Want to know whether your financial advisor is a fiduciary? Read our blog, “Is My Financial Advisor a Fiduciary?”) The SEC Complaint states that Clason had the duty to fully and fairly disclose all material facts, and the duty to employ reasonable care to avoid misleading his client. When Clason allegedly sold securities in order to transfer the proceeds to their mutual account, where he could then withdraw the cash without her approval, he violated his fiduciary duties.
On August 13, 2020, prior to this SEC filing, Clason’s firm fired him for failing to comply with the firm’s policies. And yet, Matthew Clason does not have any disclosures in his BrokerCheck record as of September 2, 2020. Even if his allegedly defrauded client had looked up his public record, she wouldn’t have found anything to scare her away from using his services. But that doesn’t mean this is the only time he has allegedly broken the rules or stolen from clients. If you have used Matthew Clason’s investment advisory services, now is the time to scrutinize his transactions in your accounts. It’s not too late to recover stolen money.
