Bedford financial adviser: clients' blame misplaced
In statement released on Thursday, the bureau claimed that Nicholas Rowe and Focus Capital Wealth Management, with offices on South River Road, took advantage of elderly widows and older investors, putting their money into high-risk securities that lost $2.4 million over five years, while charging inappropriate fees and misleading them about his credentials, according to a 12-page “petition for relief” filed by the investigative staff at the New Hampshire Bureau of Securities Regulation.
The bureau is seeking $2,430,087 in restitution for New Hampshire customers from Rowe and Focus Capital, and has issued a cease-and-desist order against both the man and the company. Rowe has 30 days to request an administrative hearing or the penalties will be imposed by default.
Rowe said he definitely plans to respond. “I've been in business for more than 20 years. In that time, I've never violated any law or even any principle of law. I have no idea what the motive was for the state to make an accusation public before they gather all the facts,” he said in a telephone interview. “We've served our clients with the highest integrity for many years.”
In addition to the possible loss of his license as an investment adviser, Rowe is also facing administrative fines and reimbursement to the state for the cost of the investigation, which began in the fall of 2011.
Jeffrey Spill, deputy director of the Bureau of Securities Regulation, would not comment on whether the matter had been referred to state or federal agencies for further action.
Spill, along with bureau attorney Eric Forcier, submitted their “statement of allegations” as part of the petition for relief on Aug. 29. They claim that Rowe placed money from 11 different clients in complex investment instruments known as inverse and leveraged Exchange Traded Funds without proper disclosures as to the risky nature of such investments.
“The bureau alleges that the New Hampshire customers in this case were unaware of the true nature of ETF trading, which can result in large losses over a short period of time,” according to a bureau press release, which described ETF funds as “complex speculative security products that seek to take advantage of increases or decreases in stock indexes such as the S&P.”
They are highly volatile, with values sometimes wildly fluctuating during the course of a single trading day, and so, according to the bureau statement, are “unsuitable for retail investors who cannot sustain the high risk of loss, and who are better suited for a buy and hold strategy.”
Rowe defended the ETF investments in his client portfolios. “Many of the client portfolios in question have undergone expert review and the expert review indicates that the portfolios were subject to less risk during the time frame examined, not more,” Rowe said.
“An ETF is very much like a mutual fund,” he said, “except it trades throughout the day.”
In regards to the statement that he did not adequately disclose the nature of ETF investments, Rowe said, “I'm an investment manager, so my role is to talk about the overall portfolio with clients and the risk characteristics of the overall portfolio, so it's very rare for there to be a discussion of the minutiae of what is inside the portfolio and how each of those works.”
The bureau maintains that from Jan. 1, 2007, to the present, Rowe and Focus Capital “engaged in a trading scheme involving inverse and leveraged ETFs for the New Hampshire customers that were unsuitable and that acted as a fraud and deceit on these customers.”
The 12-page “statement of allegations” describes the circumstances surrounding each of the 11 customers, suggesting that “despite varying risk tolerances, Rowe employed these strategies in a virtually identical manner across the New Hampshire customer accounts.”
In almost every case, the customers had been investing with Rowe since the earlier part of the 2000s. It wasn't until the fall of 2011 that state officials began receiving complaints from some of those customers regarding heavy losses through ETF trading.
“Although Rowe claimed he was engaging in a legitimate and complicated trading strategy ... at the very least Rowe's trading in New Hampshire customer accounts was reckless and grossly inconsistent with Focus Capital's own recorded investment profiles and risk tolerances,” according to the securities bureau statement, which profiles each of the 11 alleged victims as numbers one through 11.
Investor 1, a 67-year-old widow from New Castle, had invested with Focus Capital and Rowe since 2004 and is alleged to have lost $793,741 between January 2008 and September 2011.
Investor 2, a 74-year-old widow and retiree from Bedford, began investing with Rowe and Focus capital in 2002. She is alleged to have lost $133,370 between January 2007 and May 2010.
Investor 6, a 60-year-old widow from Amherst, and her three children, show a combined loss of $990,513 from Jan. 2008 through June 2010.
Other investors were related as well, including numbers 3, 4 and 5 (father, mother and son), who lost a combined $456,238 between January 2008 and May 2011. A husband and wife from Gilmanton, investors 10 and 11, lost a combined $56,225 from April 2009 through November 2011.
In addition to the risky investments and related losses, the bureau maintains that Rowe and Focus Capital charged inappropriate and excessive fees. According to the state, Rowe would tell customers that the ETF trading was necessary to balance their portfolios, but came with a 0.5 percent maintenance fee that was then applied to the entire customer portfolio, even though a substantial portion of the customer account was typically invested in a money market fund.
“It is very common for a client to pay a fee based on the total account,” Rowe said, “and each of these clients signed their name directly underneath a statement on what the fee on the entire account would be.”
Under a heading, “Rowe and Focus Capital engaged in misleading and false advertising,” the bureau describes how Rowe claimed to be an adjunct professor at Southern New Hampshire University, while the university confirmed to the bureau that it has no record of Rowe having ever been employed in that or any other capacity.
“I was a guest speaker for their finance class,” Rowe said. “It was my understanding that I could use that designation and I was incorrect. I did not use that description until July 2009. It was not a determining factor in the majority of clients who came to my firm.”
Rowe suggested that the clients in question are trying to recoup losses he attributes to the crash of 2008. “If you exclude the historic stock market crash of 2008, the client accounts that were examined show hundreds of thousands of dollars in gains, so I believe this is really about people trying to get a do-over of 2008. I would love to get a do-over of my portfolio from 2008, and I'm sure your readers would as well.”
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