Jay Costa Kelter, of Johns Creek, Georgia, a former stockbroker with Berthel, Fisher & Company Financial Services, Inc., has been charged in a Complaint by the Securities and Exchange Commission (SEC) alleging that he committed material omissions and misrepresentations to customers, misappropriated customers’ funds, and committed securities fraud. Securities and Exchange Commission v. Jay Costa Kelter, Case No. 3:17-cv-01441 (Nov. 9, 2017).
According to the Complaint, between 2007 and September of 2013, Kelter was employed with Berthel, Fisher & Company Financial Services, Inc., where he was responsible for servicing the brokerage customers’ needs and advising them about their investment portfolios, and his compensation was earned through commissions according to the investment product and transaction.
The Complaint stated that around the same time as Kelter’s September 2013 departure from Berthel, Fisher & Company Financial Services, Inc., customers were informed by him that they could receive investment advice through his association with TD Ameritrade. Apparently, clients that Kelter spoke to in this regard mistakenly believed that Kelter was expected to become associated with TD Ameritrade.
The Complaint indicated that Kelter omitted that he had not been an employee or contractor with TD Ameritrade, and failed to disclose to all his customers at Berthel, Fisher & Company Financial Services, Inc. that he was not going to be associated with any investment adviser or broker-dealer that was registered with the Securities and Exchange Commission (SEC). The SEC alleged that at least six of Kelter’s customers acquiesced to opening TD Ameritrade investment accounts and continuing to subscribe to Kelter’s investment advice.
The Complaint revealed that every customer that created an account at TD Ameritrade enabled Kelter to have the customer’s user name and password, allowing Kelter to have complete access to the customers’ account information. In addition, Kelter allegedly established one client’s e-mail account that TD Ameritrade utilized for contacting the customer about brokerage accounts transactions, where Kelter was in control of the customer’s log on credentials to the customer’s e-mail account.
In one case, Kelter reportedly defrauded a customer in the amount of $1,467,000.00. Particularly, Kelter advised customer JF beginning in 2011, during the time that he was associated with Berthel, Fisher & Company Financial Services, Inc. Customer JF was a seventy-five-year-old widow that was retired and depended nearly entirely on generating income through her investment portfolio. Kelter was reportedly instructed up front that customer JF’s goal was to invest on a conservative basis. Ultimately, customer JF invested at least $3,123,006.00 in assets that were placed under Kelter’s advisement during the time he remained at Berthel Fisher.
Subsequently, in 2013, TD Ameritrade accounts were apparently established by Kelter on behalf of customer JF, where the accounts were owned by customer JF. Kelter purportedly informed customer JF about his intended management of her assets just as he had been doing while at Berthel, Fisher & Company Financial Services, Inc.
The Complaint stated that trades were all conducted in customer JF’s behalf, during which time customer JF did not access the Ameritrade accounts. Apparently, trading in customer JF’s Ameritrade accounts began in October of 2013 and lasted until August of 2016, where reportedly one-hundred and twenty-four trades had been executed, largely entailing the sales and purchase of bonds and options.
Thereafter, between February of 2014 and August of 2016, a minimum of $1,467,000.00 had been taken by Kelter from the Ameritrade accounts owned by customer JF, where he liquidated the customer’s securities accounts and effected the transfer of funds into a bank account Kelter controlled at BEK – Kelter’s company. The SEC alleged that funds were fraudulently withdrawn by way of his forging of customer JF’s name through withdrawal orders or having customer JF effect a transfer without informing the customer about the fact that her funds were transitioned to BEK.
Apparently, Kelter utilized funds that has been misappropriated from the accounts owned by customer JF in order to invest speculatively in options and futures through accounts that Kelter was in control of and which were not designed for customer JF’s benefit. Moreover, Kelter misappropriated the funds to pay off his own personal expenses and pay off his step-mother and another creditor.
Kelter reportedly met customer JF on a regular basis throughout his fraudulent transactions, at which time he informed the customer that all was well with her investment portfolio but failed to discuss his transactions. The Complaint indicated that customer JF was told not to review her account statements at TD Ameritrade by Kelter. The Complaint also alleged that Kelter failed to inform the customer about his $1,467,000.00 transfer to a business that Kelter controlled, or that Kelter was even involved in BEK.
The Complaint stated that the customer eventually became informed about Kelter’s activities in August of 2016, after having become aware by TD Ameritrade about a pending transaction. Kelter purportedly denied having effected unauthorized transactions in the customer’s account when questioned by customer JF, in addition to making other misrepresentations about his activities. Critically; however, Kelter reportedly later acknowledged to customer JF that money was taken by him from her account.
The SEC alleged that another customer, JM, had been defrauded and victim to Kelter’s misappropriation of $200,000.00 through his sales of securities from customer JM’s account. Apparently, Kelter made false and misleading representations about investing the customer’s assets in certificate of deposits. Customer JM was reportedly deprived of any information about Kelter’s transfer of the customer’s funds to BEK. Evidently, Kelter informed customer JM about an investment being made in another institution; however, he did not inform the customer about that investment having been in a company that Kelter actually owned and received compensation from.
Worse yet, customer JM’s funds were reportedly intended by Kelter to be utilized to pay off another person, effect speculative futures and options trades, and pay Kelter’s own personal expenses. Particularly, the Complaint stated that Kelter used customers JM’s funds to buy a vacation home, a Bentley, and pay business expenses without authorization from customers.
Apparently, once customer JM became suspicious, Kelter made a false statement to the customer about BEK having been a company owned by Kelter’s uncle. Kelter reportedly misappropriated the customer’s assets at the time customer JM demanded repayment, causing Kelter to misappropriate customer JF’s assets to pay customer JM.
The Complaint further detailed that Kelter made omissions and misrepresentations to another customer by claiming that the customer would be reimbursed for investment losses. Apparently, misrepresentations were also made regarding the customer’s financial profile to induce the customer’s investments in risky securities.
The Complaint alleged Kelter’s conduct to be violative of Securities Act of 1933 Section 17(a), Securities Act of 1934 Section 10(b), SEC Rule 10b-5, and Investment Advisors Act Sections 206(1) and 206(2).
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