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On September 4, 2019, the Securities and Exchange Commission charged Connecticut resident E. Herbert Hafen with defrauding multiple retail clients by misappropriating approximately $1.6 million of client assets. In a parallel action, the U.S. Attorney’s Office for the Southern District of New York announced criminal charges against Hafen.

According to the SEC’s complaint, from 2011 through 2018, Hafen, while employed as a New York City-based registered representative and investment adviser at large financial institutions, engaged in a scheme to defraud his retail clients. The complaint alleges that Hafen convinced his clients that he had access to an investment opportunity separate from those offered by the financial institution at which he worked, and this opportunity would pay an annual six percent return. According to the complaint, Hafen instructed his clients to withdraw their money from the financial institution, including liquidating stock holdings and personal retirement accounts; deposit that money into their personal bank accounts; and then transfer or wire the money to Hafen’s personal bank account. The complaint further alleges that, once Hafen received his clients’ money, he did not invest it as promised, but instead used it for his own personal purposes, including paying house, car, and credit card expenses for himself and family members.

The SEC’s complaint alleges that Hafen violated the antifraud provisions of 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. The Commission’s complaint seeks a permanent injunction, disgorgement plus prejudgment interest, and civil penalties.

The SEC’s case is being handled by Eric M. Brooks, Patrick J. Noone, Rachel E. Hershfang, and Kevin B. Currid of the Boston Regional Office. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the FBI.