SEC charges father and son advisor duo with $27M fraud

The U.S. Securities and Exchange Commission filed a complaint last Wednesday in Pennsylvania Middle District Court targeting two defendants who had controlled $27 million in assets for allegedly defrauding investors. The suit accuses Kevin John Kane and Sean Michael Kane of failing to disclose to investors that they had been terminated from advisory firm Waddell & Reed  and were impersonating certain clients to make securities transactions.

The father and son – Kevin John Kane, 66, and Sean Michael Kane, 36, both investment adviser representatives and registered representatives and both of York, Pennsylvania – were terminated because they had violated the policies and procedures of Waddell & Reed, a dually registered advisor/broker-dealer, on Feb. 23, 2021, the SEC said in a complaint.

As investment adviser representatives, both father and son provided, and were compensated for providing financial planning and advice to clients, including advice as to the advisability of investing in, purchasing or selling securities, according to the SEC complaint. As of February 10, 2020, the Kanes were investment advisors to over 100 clients who collectively had over $27 million in assets under management at Waddell & Reed.

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Upon termination, the two were advised they were terminated for violation of company policies including outside business activities, communications with the public, client/data privacy and client signatures.

Since March 25, 2921, both have been associated with broker-dealer Cambridge Investment Research as registered representatives and are still affiliated with the firm, according to BrokerCheck. The Fairfield, Iowa-based Cambridge Investment has 3,800 advisors and manages $144 billion in assets, according to its website.

Both father and son have been charged with fraud by the SEC.

The Kanes also allegedly misrepresented to certain clients that they were still associated with their former firm and could still access client accounts. In addition, the complaint alleges that, to further their deceit, the Kanes impersonated certain clients in phone calls to their former firm in order to execute transactions in their clients’ accounts. The Kanes repeatedly violated their fiduciary duties in an effort to convince their clients to join them at a new investment advisory firm so that they would continue to receive advisory fees.

The firm name wasn’t identified by the SEC, either in its complaint or news release about it on Thursday. But the firm was identified by the Financial Industry Regulatory Authority as Waddell & Reed, where the father was registered since 2013 and the son since 2018, according to their reports on FINRA’s BrokerCheck website. LPL Financial completed a purchase of Waddell & Reed’s wealth management business from Macquarie Management Holdings for roughly $300 million in April 2021.

The SEC’s complaint also alleged that, following their terminations, to persuade some of their clients to join them at their new firm, the Kanes falsely represented to clients that they left their former firm voluntarily. The SEC seeks permanent injunctions and civil penalties.