INVESTORS: Investment Adviser Arthur S. Hoffman was charged with fraud by the SEC following allegations of failure to disclose financial conflicts of interest.
On February 24, 2022, the SEC announced charges against Arthur S. Hoffman arising from recommendations he made to clients while working as an investment adviser representative of Ameriprise Financial Services.
The SEC’s complaint alleged that from May 2019 to December 2019, Hoffman recommended investments in securities issued by Zima Global Ventures, LLC, which purported to use investor funds to trade cryptocurrencies and other digital assets for profit. These recommendations occurred without disclosing conflicts of interest – in particular, that Zima had agreed to lend Hoffman up to $1.5 million at two-percent interest per year for soliciting investors, and that, in most cases, Hoffman already owed Zima tens of thousands of dollars under that agreement.
According to the SEC, at least one client asked Hoffman about his compensation from Zima, and Hoffman claimed that his association with Ameriprise limited him to a one percent commission. In reality, Hoffman was prohibited by Ameriprise from recommending the investments to clients, and his true compensation totaled more than $170,000 in low-interest loans from Zima, which was more than 25% of the total amount invested by his clients. Hoffman also allegedly took steps to conceal his conduct from Ameriprise, including by using a non-Ameriprise email address to communicate with clients about Zima’s securities, which allegedly violated Ameriprise’s policies and procedures, and by persuading two clients not to tell Ameriprise that Hoffman recommended Zima’s securities to them when Ameriprise contacted the clients about their investments. Eight of Hoffman’s clients invested a total of more than $640,000 in Zima’s securities based on his recommendations. In January 2020, Zima collapsed when its principals were arrested and charged with conspiracy to commit wire fraud and money laundering, leaving six of Hoffman’s clients with more than $610,000 in losses.
The SEC complaint charges Hoffman with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Without admitting or denying the allegations of the SEC’s complaint, Hoffman consented to the entry of a judgment imposing a permanent injunction, pending court approval.
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