Has Your Stockbroker Defrauded You?

Even a well-trusted investment advisor can take advantage of their client relationships, as illustrated by a recent lawsuit brought by the United States Securities and Exchange Commission (“SEC”).

Per the SEC’s September 29, 2022 complaint, Bradley Goodbred, a registered investment adviser based in Illinois, misappropriated a total of $1,295,000 from a 97-year-old client between 2012 and 2021. [1] While the defendant, Goodbred, returned a portion of this money, his client still lost more than half a million dollars as a result of his fraudulent actions. [2]

According to the SEC’s complaint, Goodbred became the client’s investment adviser sometime before 2006, when the client and her husband were searching for a trusted, long-term financial adviser to help guide financial decisions in the event that the client’s husband passed away. [1]

After the client’s husband’s death in 2006, Goodbred became a “friend and confidant” to the client, who had no next-of-kin and who lived by herself. [1] By 2013, Goodbred had been appointed as the investment adviser for the client’s trust account and as power of attorney for purposes of the client’s health and property. [1]

As an adviser, and with a substantial amount of power over the client’s health and finances, Goodbred owed fiduciary duties to the client including the duty to act in her best interest and the duty to act towards her in good faith. [1]

The SEC alleges that Goodbred violated these duties when he misappropriated large sums of the client’s financial resources. Goodbred committed these fraudulent acts by soliciting the client to transfer more than $1 million from 2012 to 2021 to a business he owned. [1] Goodbred then purported to invest the client’s funds in real estate investment trusts (“REITs”) on the client’s behalf. [1]

In reality, Goodbred did not invest any of the client’s money in REITs on her behalf. [1] He instead used the money to cover personal and business expenses which bore no relation to the purported investments. [1] These expenses included income taxes, automobile loans, and credit card debt incurred by Goodbred and his wife. [1]

Today, the client suffers from dementia and is cared for by a court-appointed guardian. [1] Goodbred’s fraudulent scheme was only uncovered when the financial institution he worked for received a complaint suggesting that Goodbred was “exercising inappropriate discretion over the Client’s trust account,” for which an investigation was launched. [1]

The investigation resulted in Goodbred’s firing from the financial institution, and ultimately these charges by the SEC. [1]

Through its complaint, the SEC alleges 5 counts of federal securities fraud and seeks injunctions against Goodbred and appropriate civil penalties, ultimately to be determined via a jury trial. [1]

This case indicates the dangers posed by financial advisers who obtain undue power over their client’s financial resources and ultimately use it for their own betterment. Here, the client and her husband believed they had hired a trustworthy financial adviser to guide them as they both advanced in age. Instead, they became victims of more than $1 million in theft.

All investment advisers should be thoroughly vetted, and clients should do all they can to monitor the activity of their advisers, or otherwise appoint a neutral third party without direct power over the finances to assist in monitoring.

If you think you have been taken advantage of by your financial or investment adviser, the trusted attorneys at Savage Villoch law are ready to help. Reach out for your consultation today!

Sources:

[1] https://www.sec.gov/litigation/complaints/2022/comp25536.pdf

[2] https://www.sec.gov/litigation/litreleases/2022/lr25536.htm?utm_medium=email&utm_source=govdelivery