The former comptroller of a registered investment advisor owned by her father will spend six years in prison after pleading guilty to her role in their scam defrauding clients for $11.4 million. The compliance woes of some so-called hybrid RIAs remain a problem, though, experts say.
Vania May Bell received a sentence of six years and eight months on Oct. 11 in New York's federal court after pleading guilty to conspiracy to commit wire fraud. Hector May, a former financial advisor with Advisor Group's Securities America , is serving a 13-year term after admitting to the roughly 20-year phony bond investment scheme in 2018. Securities America has paid an SEC civil penalty and settlements with as many as 16 victims totaling $15.6 million.
"Over two decades, Bell and her father Hector May ruthlessly orchestrated a multimillion-dollar Ponzi scheme," U.S. Attorney Damian Williams said in a statement. The victims included "vulnerable aging couples, close friends, relatives and an employment pension plan of a construction company," Williams said. "Bell now joins her father in prison to be held accountable for this devastating crime."
The public defenders who represented Bell, a 57-year-old resident of Montvale, New Jersey, didn't respond to an email seeking comment on the case. Her attorneys had asked for a term below the government's request for at least eight years in part by arguing that an at-times "violent and abusive" and frequently absent relationship with her father had made it easy for him "to manipulate his daughter into becoming his accomplice."
Representatives for Advisor Group declined to comment on the case. In the SEC case that Securities America settled in June 2021 for $1.75 million , investigators said the firm failed to adequately review at least 55 alerts in its systems that could have put a stop to the scheme.
The shuttered New City, New York-based RIA at the center of the case, Executive Compensation Planners, displays the complex role of such hybrid firms in the industry. Hybrid RIAs are firms owned by advisors or branch managers who are also affiliated with brokerage firms such as Securities America. The RIAs often serve as recruiting and growth engines for the wealth managers. The ability to conduct advisory business outside the national firms' directly owned RIAs enables more flexibility and often higher payouts for advisors' practices. However, that setup can also give alleged bad actors more openings for harmful sales tactics or fraud.
Amid other recent cases holding chief compliance officers liable for fraud under their watch, the sentencing of Bell, 57, stands out as "a really good messaging case" that "wrongdoers will be prosecuted," according to attorney Michael Edmiston, president of the Public Investors Advocate Bar Association. Bell had worked for the RIA for 25 years with tenures as comptroller and chief compliance officer, and investigators said she played a vital role in the scheme.
"Most of these people, they're good. The bad actors see this as regulatory arbitrage," Edmiston said in an interview about hybrid RIAs. "This happens with a degree of frequency that is shocking. In many instances, it's not picked up and taken as far."
Edmiston's organization, which is an advocacy group for lawyers who represent clients in cases against the industry, strongly opposed a FINRA rule proposal in 2018 that it said would have increased the likelihood of scams through hybrid RIAs by removing some supervisory obligations for firms like Securities America. FINRA later shelved the proposal .
"PIABA members have seen, all too often, registered representatives establishing solo or small [RIA] firms and using outside business activities in order to avoid member supervision, in order to engage in activities that harm investors," the organization wrote at the time. Its letter included a list of four different schemes that allegedly cost hundreds of clients a combined $46.5 million.
Representatives for FINRA declined to comment on the questions posed by May's case about brokerage supervision, noting a policy against discussing investigations. Representatives for the SEC pointed to the case against Securities America last year, noting that the regulator had named the firm's corporate RIA, Securities America Advisors, as the defendant.
Like most large wealth managers who are known in the industry as dually-registered firms, Securities America has an RIA subject to fiduciary standards requiring it to place clients' interests ahead of its own and a brokerage that only needs to act in their best interest.
Securities America's RIA had assigned some aspects of the supervision to the brokerage, but it had the responsibility to enforce its own policies and procedures tailored to its business, according to the SEC. Besides the fiduciary duty, the national wealth managers' RIAs could face enforcement actions involving their affiliated hybrid firms under guidelines like the compliance rule , the custody rule or their supervision of those advisors as part of their SEC registration .
With tens of thousands of RIAs registered with the SEC and at the state level in offices spread all over the country, however, there "just aren't resources for regulators" that would be necessary for aggressive oversight of all of them at once, according to Edmiston. The wealth managers have a conflict of interest stemming from the way that the hybrid RIAs boost their profits, while the clients aren't likely to grasp the technical details of the setup, he said.
"That's the perfect scenario for a bad actor to exploit investors," Edmiston said. "There's no indication of any red flags for clients to think that there's anything wrong."
In the case of May and Bell, at least, many of the clients have received payment for their losses from Securities America and the advisor and his daughter have substantial prison terms. Bell's sentence includes three years of supervised release, restitution of more than $8 million and the forfeiture of any additional $590,000.
Bell "was no minor or marginally significant participant in this crime," according to the Justice Department's sentencing memo from earlier this month. "Bell faked account statements that made people believe that they held millions, even when she knew (thanks to her tracking spreadsheets on QuickBooks) that their money was stolen. Bell wielded her role as chief compliance officer and comptroller to help conceal the fraud from [Securities America]."