Investor's Watchdog.com: Stock, finance and investment protection for investors

Your investment adviser is registered with the U.S. Securities and Exchange Commission (“SEC”).  Your money must be safe, right?  That is not a safe assumption.

The SEC has charged Orange County registered investment adviser Envision Direct L.L.C., and its owner, Gary R. Headding, with stealing more than $270,000 from clients and using part of it to fund Headding’s personal individual retirement account.  The SEC uncovered the conduct that underlies these allegations during an examination by the SEC’s Office of Compliance Inspections and Examinations.

Notice two things about this case.  First, notice that SEC’s examination staff uncovered the case.  The SEC’s examiners are an impressive group of dedicated professionals.  Many eventual enforcement cases start with facts uncovered during examinations of investment advisers and broker-dealers.  There are not, however, enough examiners.  Quite often, an investment adviser or broker-dealer can go years between examinations.  Thousands of retirees can lose their life savings during the gap between examinations.

Finally, notice that Headding’s firm was registered with the SEC as an investment adviser (“RIA”).  While RIA’s are prohibited from suggesting that their status as RIA indicates the SEC’s approval of the firm, clients often leap to that conclusion.

The SEC does not do a quality review of prospective RIAs.  It is far too small an agency to do that.  The safest course, therefore, is to choose an RIA who voluntarily submits to outside review by an independent, SEC-trained investor protection company.