SEC Charges Against Arete Wealth: Zona Energy Fraud

The Securities and Exchange Commission recently announced charges against Arete Wealth and three of its former personnel: Joey Miller, Jeff Larson, and Randy Larson. The regulator has also filed charges against the firm’s Chief Compliance Officer, UnBo Chung, also known as Bob Chung. The charges allege fraud, registration violations, aiding and abetting record-keeping violations, and other violations of federal securities law.

According to an SEC litigation release, the charges stem from a scheme in which Richard Dale Sterritt, Jr. and six other individuals allegedly defrauded investors in Zona Energy, “a sham oil-and-gas company.” The SEC alleges that Mr. Miller, Jeff Larson, and Randy Larson “sold more than $8 million worth of Zona shares to many of their Arete clients and customers,” even though the firm had not approved the securities for offer and sale. The sale of investments unapproved by a broker’s firm is known as “selling away,” the SEC notes, and is forbidden by securities law.

After Mr. Chung and other management staff at the firm learned that the defendants’ clients made investments in Zona Energy, according to FINRA, he and the firm “ordered the three to obtain settlement agreements releasing the Arete entities and their management from liability relating to Zona.” The resulting settlement agreements, which more than 100 firm clients signed, allegedly “false and misleading statements as well as an illegal broad liability disclaimer.” This disclaimer “could lead a client to incorrectly believe that the client had waived non-waivable causes of action against the adviser,” according to the charges, which further victimized the investors.

The SEC’s investigation is still being conducted, according to the litigation release. Among other penalties, the regulator is seeking permanent injunctions and civil penalties, as well as bars against Mr. Miller, Jeff Larson, and Randy Larson. More information about the charges can be found via the SEC.

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