SEC Charges Herbert Hafen With Financial Fraud

September 5, 2019 | News, Regulations

Hafen was previously barred by FINRA in early 2019

Herbert Hafen is having a tougher day than you are.

The Securities and Exchange Commission has charged Herbert Hafen with defrauding multiple retail clients.

From 2011 to 2018, Hafen allegedly misappropriated about $1.6 million of client assets. The U.S. Attorney’s Office for the Southern District of New York also announced criminal charges against Hafen on Thursday.

FINRA suspended Hafen in February after he failed to respond to an inquiry over his discharge from Wells Fargo Clearing Services and a related customer dispute. In a complaint from September 2018, a customer sought $675,000 in damages. The customer alleged that between July 2011 and January 2018, Hafen misallocated their money while working for Morgan Stanley Smith Barney.

The SEC says that Hafen convinced his clients that he had access to an investment opportunity separate from one provided by his company. He told investors the opportunity would pay an annual 6% return. According to the complaint, Hafen instructed clients to withdraw their money from the financial institution, including liquidating stock holdings and personal retirement accounts. He then instructed them to deposit that money into their personal bank accounts. Finally, he told them to transfer money to his personal bank account.

Yes… we know. That wasn’t a massive red flag to some people.

Herbert Hafen and His Client’s Money

As one would expect, once Hafen received his clients’ money, he allegedly did not invest it as promised. Instead, the SEC says he used the money for “his own personal purposes, including paying house, car, and credit card expenses for himself and family members.”

“Elias Hafen promised his investment clients significant returns in a ‘special’ fund.  With fake statements and guaranteed returns, Hafen was every investor’s worst nightmare,” said U.S. Attorney Geoffrey Berman. “He never invested his clients’ money and instead used it to fund his own lavish lifestyle.  Today, Hafen admitted his crimes and he will soon likely spend time in prison for his misdeeds.

Hafen has admitted to defrauding at least 11 clients. He pled guilty one count of wire fraud. He now faces up to five years in prison.

Wells Fargo fired Hafen in August 2018 after he “entered into financial arrangements with clients that were not approved by the firm.”

The investment firm settled the single dispute listed above for $430,000.

Hafen began his career at Merrill Lynch in 1979. He worked at Bear, Stearns & Co., Morgan Stanley, Bateman Eichler, and Consolidated Capital Consolidated. FINRA barred him earlier this year.

For more SEC cases, visit our lastest fraud news.

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