The U.S. Securities and Exchange Commission charged New York-based investment advisor Train Babcock Advisors LLC (TBA), a New Jersey-based attorney and a New York-based accountant in connection with a fraudulent scheme led by TBA's former principal, John Rogicki, who stole more than $9 million from his advisory client, a charitable foundation established by an elderly widow to donate her estate to health and education causes.
TBA, which is in the process of winding down its operations, has agreed to settle the SEC's charges by paying more than $1.7 million in disgorgement, interest and penalties for these and other violations. TBA has also agreed to be censured and to withdraw its registration with the SEC as an investment advisor.
Separately, the SEC filed a complaint in federal court in Manhattan against one of the foundation's trustees, attorney Robert Gaughran, and its accountant, Kevin Clune, alleging that they aided and abetted the fraud perpetrated by TBA and Rogicki.
According to the SEC's filings, between 2004 and 2016, Rogicki took advantage of his roles as investment advisor and trustee to the foundation by liquidating securities positions in the foundation's advisory account with TBA and misappropriating a total of more than $9 million from the foundation for his own personal benefit.
On Oct. 19, the SEC filed a civil injunctive action in federal district court against Rogicki. In a parallel criminal action, Rogicki pleaded guilty to criminal charges brought against him by the Manhattan District Attorney and on Dec. 14 Rogicki was sentenced to serve 30 to 90 months in prison and ordered to pay $6.7 million to the foundation, of which he forfeited $2.5 million, in connection with his criminal plea.
The SEC's complaint alleges that Gaughran and Clune aided and abetted TBA's and Rogicki's fraudulent scheme.
While serving as a trustee of the foundation, Gaughran allegedly accepted outsize fees and ignored glaring signs of Rogicki's theft that were apparent from the foundation's brokerage statements and other documents that he regularly reviewed. Gaughran also drafted the trust and estate papers that put Rogicki in charge of the charitable foundation and knew the size of the estate that should have flowed to the charitable foundation, but for Rogicki's misappropriation of $9 million of its assets.
Meanwhile, according to the SEC's complaint, Clune, an accountant who performed tax work for both the estate that created the charitable foundation and the charitable foundation itself, ignored multiple and repeated red flags revealing Rogicki's and TBA's fraudulent scheme.
In addition, both Gaughran and Clune were actively involved in concealing the theft by providing false information to an outside audit firm during a surprise examination of the charitable foundation that was conducted in 2014.
The SEC's complaint charges Gaughran and Clune with aiding and abetting TBA's and Rogicki's violations of the Investment Advisers Act of 1940 and the Securities Exchange Act. The SEC's complaint seeks a permanent injunction, disgorgement, prejudgment interest and penalties against Gaughran and Clune.
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