The U.S. Securities and Exchange Commission has censured a Purchase investment firm and one of its brokers for charging fees that put their interests ahead of their clients’ interests.
The SEC ordered One Oak Capital Management to pay $150,000 and broker Michael DeRosa to pay $75,000 in penalties, on Feb. 14, for business practices that operated “as a fraud or deceit” upon clients.
One Oak and DeRosa consented to the SEC cease-and-desist order.
One Oak specializes in fixed-income securities, such as municipal bonds and corporate bonds, and has about $283 million in assets under management. Stephen Ditursi is the CEO and chief investment officer.
DeRosa, 75, of Manalapan, New Jersey, joined One Oak in 2020 while continuing to work for Fox Chase Capital Partners in Staten Island.
Shortly after he joined One Oak, the SEC says, DeRosa recommended to about 180 long-time clients, who were mostly elderly, that they convert their accounts to One Oak.
The old accounts were set up as brokerage deals, where clients paid commissions when assets were bought or sold.
One Oak charges advisory fees for managing client portfolios.
One Oak and DeRosa did not disclose that the advisory fees were significantly higher than the commissions clients had been paying. For example, clients who converted their accounts to One Oak in 2020 and 2021 paid seven times more, on average, and in some cases, ten times more, than they had previously paid.
One Oak charged the new clients $268,000 in advisory fees, from which DeRosa received about 75%.
Despite charging higher fees, according to the SEC, DeRosa did not increase the number of trades or provide more services.
Also, One Oak was required to obtain signed investment management agreements from clients before charging advisory fees. About 60 clients did not receive an agreement before fees were assessed. Some received the agreement without an attached fee schedule. Some received the agreement with a blank fee schedule that was filled out after the clients signed the agreements.
One Oak also failed to provide some clients with a detailed advisory brochure that the SEC requires investment advisers to give clients before they open an account.
One Oak and DeRosa did not conduct meaningful reviews of the clients’ investment profiles, according to the cease-and-desist order, and therefore did not have a reasonable basis to believe that the advisory accounts were in their clients’ best interests.
“In fact, many of the converted accounts,” the SEC says, “were not suitable to be advisory accounts.”
The SEC noted that One Oak voluntarily refunded most of the advisory fees.
One Oak agreed to notify clients about the cease-and-desist order, hire an independent compliance consultant to review its policies, and to adopt all recommended changes.
DeRosa was also barred from associating with anyone or any firm in the securities industry for nine months.
