The Financial Industry Regulatory Authority (FINRA) has really thrown the book at David Elgart of Sequoia Investments for “willfully failing” to disclose over $400,000 in tax liens. We’ll dive into why this is important information for investors, but first, some quick background:
David Elgart is the president, chief compliance officer (CCO), and majority owner of Sequoia Investments. Located in Roswell, Georgia—a wealthy suburb of Atlanta—Sequoia investments focuses on selling municipal bonds to high net worth investors.
According to FINRA documents, Mr. Elgart testified that he operates Sequoia with “only a modicum of assistance.”
Why does FINRA care about Mr. Elgart’s tax liens?
FINRA cares about tax liens against financial advisors because investors should care about tax liens against financial advisors. FINRA rules require prompt disclosure of these liens because they are important information the investing public deserves to know when selecting a financial advisor.
According to FINRA, Mr. Elgart engaged in “a pattern of misconduct over ten years that reflected ongoing concealment of his liens.” His investors were entitled to know that he had over $400,000 in liens against him, but they were left in the dark.
An investor might want to know about his or her advisor’s tax liens for a few different reasons.
First, a financial advisor who owes the IRS a lot of money will be under pressure to make money, potentially by way of high commission products that might be unsuitable for most investors. Investors deserve to know if their advisor is under unusual financial pressure.
Second, a potential client might reasonably question the idea of taking investment advice from an advisor who lacks the judgment and financial acumen to avoid large tax liens. As FINRA stated, tax liens “reflect [poorly] on [Mr. Elgart’s] ability to provide appropriate financial advice.”
Perhaps there are extenuating circumstances that would explain why these tax liens aren’t a big deal in Mr. Elgart’s case, but investors deserved to have all of the facts when selecting him as their advisor.
According to FINRA documents, Mr. Elgart claimed his failure to disclose these liens for over a decade was inadvertent, but a FINRA hearing officer, as well as FINRA’s National Adjudicatory Council, concluded that his “contradictory accounts of when he learned about the liens” was “evidence of his lack of credibility,” concluding that the failure to disclose these liens was not accidental, but instead “willful.”
Mr. Elgart has appealed FINRA’s decision to the U.S. Securities & Exchange Commission. While FINRA entered an order fining and suspending Mr. Elgart, FINRA will not enforce these sanctions while Mr. Elgart appeals their decisions, so he is currently free to market his services to investors and service their accounts.
Sequoia has also failed to keep enough cash on hand to satisfy securities regulations.
In addition to the issue of failure to disclose tax liens, Sequoia Investments has also been in hot water with FINRA for failure to meet FINRA’s net capital requirements, and FINRA has alleged that the firm “prepared and maintained materially inaccurate net capital computations.”
This should also cause concern for investors. While financial advisors are not required to carry professional liability insurance, FINRA does require that they have a minimum amount of cash on hand. This requirement—called the “net capital” requirement—provides some assurance that a brokerage firm will be able to cover its liabilities, including any customer arbitration awards entered against the firm. According to FINRA, Mr. Elgart’s firm has had some issues with this, too.
If you have questions about investment losses, the securities litigation attorneys at Investor Defense Law LLP may be able to help, and offer free consultations. Investor Defense Law LLP is a law firm dedicated to helping investors in California, Georgia, and Washington State recover investment losses. We understand investment fraud and know how to sue investment advisors, brokerage firms, and financial advisors. To learn more, contact an investment fraud attorney at 800.487.4660.