In United States v. Tagliaferri, No. 15–536, the Second Circuit held that a conviction for investment adviser fraud, under section 206 of the Investment Advisers Act of 1940, 15 U.S.C. § 80b–6 and 80b–17, requires only intent to deceive one’s clients, not intent to harm them as well.
Tagliaferri ran a boutique investment advisory firm where, the government alleged, he engaged in various deceptive practices, including taking kickbacks for investing client funds with particular entities, cross-trading between client accounts, and falsely characterizing investments as loans. The government charged Tagliaferri with, among other offenses, investment adviser fraud under section 206. At trial, Tagliaferri’s defense was that, despite his deceptive practices, he “always believed that he would be able to work things out so that his clients would not be harmed.” Accordingly, he sought a jury instruction that investment adviser fraud requires not only intent to deceive one’s clients, but also, as with general common-law fraud, intent to harm then. The district court (Abrams, SDNY) refused the instruction and the jury convicted.
The Circuit affirmed, holding that Section 206 “prohibits not only common-law fraud by investment advisers, but also ‘any practice which operates as a fraud or deceit.’” (quoting SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 195 (1963)). Thus, “in the special context of a fiduciary relationship and given … Congress’s intent to reach more than common-law fraud between arms-length parties, it would be inconsistent with the text of section 206 and the congressional purpose motivating it to require specific intent to harm.” All that’s necessary is that the government prove willful deception: “Because the wrongfulness of section 206 violations derives from their deceptiveness, proof that the defendant intended to deceive his clients suffices to establish the requisite mens rea for guilt.”
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