Allegations
In February 2016, an internal investigation by RGT revealed that two partners and employees in RGT's California office, "{Third Party}" and "{Third Party}" recommended to a small group of clients certain private equity investments despite the fact that over time these investments had deteriorated financially (the "Subject Investments"); withheld material information from RGT and its clients regarding the Subject Investments; for a small number of clients, made certain investments without client approval; and, as to "{Third Party}" , accepted undisclosed "finders fees" in exchange for orchestrating some of the Subject Investments.
RGT terminated the partners, as well as various other staff in the California office. On February 17, 2016, RGT voluntarily disclosed its investigation to the SEC, which subsequently launched its own investigation. The SEC filed a lawsuit in the Northern District of Texas (SEC v. "{Third Party}" , et al., 3:16-cv-1417-M) against The Ticket Reserve, Inc., ("TR") one of the Subject Investments. The suit also named "{Third Party}" , who served on TR's board, and two other TR board members as defendants. The court appointed a receiver to take over operation of TR. Neither RGT nor Mr. Shockley was named as a defendant in the SEC's lawsuit.
On June 13, 2017, former RGT clients, {Customer} (together, the {Customer}), filed a lawsuit in California Superior Court against {Third Party}, RGT and its partners, including Mr. Shockley, related to {Third Party}actions in connection with the Subject Investments (LASC No. BC664848). The lawsuit alleged that {Third Party} had committed various acts that harmed the {Customer}, including issuing fraudulent investment reports that overstated the value of the {Customer}' investments, failing to disclose conflicts of interest, failing to manage properly the {Customer}' assets, misrepresenting his qualifications and violating federal and state law. The {Customer} also alleged, without attributing any allegations to specifically named individuals other than {Third Party}, that RGT and its partners were liable for {Third Party} actions based on various legal theories including negligent hiring, supervision and retention and aiding and abetting. RGT and its partners have reached a full and final settlement with the {Customer}, and the Court approved the settlement and granted the parties' Joint Motion to Dismiss on October 4, 2017.
Settlement Amount
$500,000.00
Broker Comment
On November 21, 2016, upon motion by the SEC seeking approval of a settlement between it and {Third Party}, the court entered a final judgment by consent against {Third Party}, resolving the SEC's claims against him. {Third Party} was ordered to pay disgorgement in the amount of $1,498,000 and a $350,000 civil penalty. Under an additional agreement with the SEC, {Third Party}is barred from associating with any registered investment-related business and has been suspended from appearing or practicing before the SEC as an attorney or accountant.
In October 2016, RGT closed its California office. All clients are now being served from the firm's Texas office. Since discovering {Third Party} actions and the Subject Investments, RGT has worked tirelessly to assist affected clients. First, RGT voluntarily disclosed {Third Party}actions and the Subject Investments to all clients. Next, the firm has reached mutual settlements and releases with clients representing more than 98% of the money invested in the Subject Investments. Finally, RGT continues to assist affected clients who seek to maximize value and mitigate losses associated with the Subject Investments.
In addition to naming RGT Capital Management, the {Customer} named all RGT partners as defendants in their lawsuit regardless of their level of involvement with the {Customer}or their accounts. Mr. Shockley never served as an advisor to the {Customer}or had any involvement with their accounts.