Idaho investment adviser firm ordered to pay back investors $300,000 after settlement with Securities Commissioner
DENVER — Colorado Securities Commissioner Gerald Rome today signed an order for Idaho-based Allegis Investment Advisors, LLC, President Heath Bowen, and former Vice President Peter Klaas wherein the Defendants are required to pay back $300,000 in restitution to investors who were injured by what the Commissioner alleged to be fraudulent practices in violation of the Colorado Securities Act. The order follows a complaint for injunction filed by the Colorado Attorney General’s Office on behalf of the Commissioner in May 2017.
The complaint alleged that Bowen and Klaass marketed and sold a “net credit spread options strategy” to investors through the use of misstatements and misrepresentations as to the true nature of the risk associated with the investments. A net credit spread is an options strategy that involves both the sale of an options contract and the purchase of the same kind of options contract where the difference between the proceeds from the sale and the purchase price results in a net credit of funds to an account. The net credit received represents the maximum profit attainable from the transaction.
Between 2011 and 2015, the Division of Securities, part of the Department of Regulatory Agencies (DORA), found that multiple Colorado investors, the majority of whom were over the age of 75, were convinced to invest in these highly complex and risky option contracts. They were promised returns of 10 to 12 percent annually based on monthly trades that earned them about a one-percent return per month. In reality the trades could have, and did result in losses that ranged from 40 to 100 percent of the value of the client’s account.
Today’s order states that full payment must be made to the Commissioner within one year, or else Allegis must permanently cease operations in the state of Colorado. If payment is made before April 30, 2018, operations may continue provided Allegis adheres to the Colorado Securities Act. It is also stipulated that Bowen will cease to practice financial advising in Colorado, and has agreed to never reapply for securities licensure within the state.
“Investing is risky enough when involving stocks and bonds or even plain vanilla mutual funds, but it gets downright dangerous with the increase in complexity of many investment strategies,” stated Commissioner Rome. “This risky strategy, the equivalent to shorting highly leveraged put options, was not suitable for any but the most sophisticated, risk-seeking investors. Financial professionals who ignore their duty to act in the best interests of the clients can cause significant harm to their customers. We are pleased that the Colorado investors in this case will be repaid.”
Defendants paid $75,000 up front, with the remaining payments due within the year. Further, as part of the stipulation the Division of Securities retains the right to request documentation of adherence to the conditions of the order, and to take further disciplinary or legal action if the conditions are not met.