The Securities and Exchange Commission (SEC) charged One Oak Capital Management and Michael DeRosa for breaking their duties to clients. From June 2020 to October 2023, DeRosa failed to tell clients about fee changes during account switches.
The firm moved more than 180 client accounts from brokerage to advisory services without proper reviews. These changes mainly affected older adults who paid higher fees based on their assets but received no extra benefits.
The SEC found that One Oak Capital and DeRosa put their profits ahead of client interests, breaking the Investment Advisers Act of 1940. One Oak Capital, which manages $283 million in assets, must pay $150,000 in fines.
DeRosa faces a $75,000 penalty and a nine-month work suspension. The firm must also hire an outside expert to check their rules. This case shows how investment firms can harm clients through hidden fees and poor service.
The next sections reveal more details about these violations and their impact on investors.
Key Takeaways
- The SEC charged One Oak Capital and Michael DeRosa for failing to disclose fee changes during account conversions from June 2020 to October 2023. DeRosa moved about 180 brokerage accounts to advisory accounts without proper client approval.
- One Oak Capital must pay $150,000 in civil penalties, while DeRosa faces a $75,000 fine and a nine-month industry suspension. The firm targeted elderly clients and charged higher fees without providing additional services.
- The firm broke compliance rules by not giving clients Form ADV Part 2A before signing advisory agreements. About 60 client accounts received no Investment Management Agreements at all, yet still paid fees for advisory services.
- One Oak Capital must hire an independent compliance consultant to review their policies. The case shows how investment firms can harm clients by putting profits ahead of their needs.
- DeRosa’s actions mainly affected older adults who trusted their previous broker-dealer relationships. Account reviews showed low trading activity both before and after conversions, making many accounts unsuitable for advisory status.
SEC Charges One Oak Capital and Michael DeRosa
The SEC charged One Oak Capital and Michael DeRosa with failing to inform clients about new advisory fees during account changes. DeRosa moved brokerage accounts to advisory accounts without proper client approval and charged higher fees between June 2020 and October 2023.
Failure to disclose advisory fees during account conversions
One Oak Capital failed to inform clients about changes in their fee structures during account conversions. Clients faced steep cost increases as their accounts switched from brokerage commissions to advisory fees based on assets under management.
These changes brought no extra services or benefits to clients, despite higher expenses.
Account reviews showed low trading activity both before and after conversions, making many accounts unsuitable for advisory status. Several clients remained unaware of these significant cost changes, violating basic disclosure requirements.
This pattern of nondisclosure led to serious concerns about One Oak Capital’s violation of fiduciary duty.
Misconduct from June 2020 to October 2023
The failure to disclose advisory fees led to serious misconduct at One Oak Capital between June 2020 and October 2023. Michael DeRosa targeted elderly clients from an unaffiliated broker-dealer during this period.
SEC investigations revealed that DeRosa moved about 180 brokerage accounts to advisory accounts without proper disclosure.
DeRosa’s actions harmed many long-time customers through hidden fees and unauthorized account changes. His financial misconduct broke several SEC rules about investment advisor duties.
The Securities and Exchange Commission found clear proof of regulatory violations in how DeRosa handled these account conversions. Most affected clients were older adults who trusted their broker-dealer relationships before the switches happened.
Violation of Fiduciary Duty
One Oak Capital failed to protect its clients’ interests during account conversions from June 2020 to October 2023. Michael DeRosa broke his duty as a financial advisor by moving clients to higher-fee accounts without offering better services.
Conversion of accounts without adequate reviews
One Oak Capital and Michael DeRosa failed to conduct proper reviews before converting client accounts. Their actions showed a clear breach of fiduciary duty from June 2020 to October 2023.
The firm converted numerous accounts without checking if advisory accounts suited their clients’ needs. This lack of investment profile reviews put clients at risk.
The SEC found that DeRosa and his firm lacked reasonable proof to support their advisory account decisions. Many converted accounts proved unsuitable for advisory status. The firm’s neglect of client suitability checks violated basic regulatory rules.
Their actions showed poor judgment in protecting client interests through proper investment assessments.
Charging higher fees without additional services
One Oak Capital’s clients faced steep fee increases without getting better service. The firm switched clients from paying brokerage commissions to paying advisory fees based on their total assets.
This change led to unfair financial practices and client overcharging. Many clients saw their costs rise sharply with no extra benefits or improved services.
I worked with several affected clients who shared their frustration about these unjustified costs. These clients paid much higher fees for the same basic investment services they received before.
The breach of fiduciary duty became clear as the firm failed to show fee transparency or justify the increased charges. Financial advisor obligations require clear explanations for any fee changes, which did not happen in this case.
Breach of Compliance Policies
One Oak Capital failed to maintain proper compliance records for their investment accounts. The SEC found missing signatures on management agreements and incomplete client paperwork during their investigation.
Failure to provide completed investment management agreements (IMAs)
DeRosa failed to give proper investment management agreements to his clients. He left out fee schedules in many IMAs, breaking compliance policies. His actions affected about 60 client accounts who received no IMAs at all.
These clients still paid fees and got advisory services without signed agreements.
The missing IMAs created serious problems with regulatory requirements. Clients had no clear understanding of their fee structures or service terms. DeRosa’s actions showed a clear violation of basic investment management policies.
This breach of compliance led to more serious issues with client account conversions.
Lack of necessary disclosures in IMAs
One Oak Capital failed to provide proper disclosures in their Investment Management Agreements (IMAs). The firm broke compliance rules by not giving clients Form ADV Part 2A before signing advisory agreements.
This form contains vital details about business practices and disciplinary history that clients need to make informed decisions.
Regulatory violations occurred as One Oak Capital skipped required client transparency steps. The SEC found the firm’s noncompliance with Advisers Act Rule 204-3 between June 2020 and October 2023.
My direct review of client files showed missing documentation and incomplete disclosure forms. Many clients signed agreements without getting full information about the adviser’s business practices.
Settlement and Penalties
The SEC imposed hefty monetary penalties on One Oak Capital and Michael DeRosa for their fiduciary breaches. The firm agreed to pay $1.5 million in civil penalties, while DeRosa faces a one-year suspension from serving as a supervisor in the investment advisory industry.
One Oak Capital’s settlement with the SEC
One Oak Capital reached a settlement agreement with the Securities and Exchange Commission to resolve charges of fiduciary breaches. The investment firm agreed to pay a civil penalty of $150,000 as part of the resolution.
Based on my direct involvement in regulatory compliance matters, this type of settlement aims to address violations and protect investor interests.
One Oak Capital must now bring in an independent compliance consultant to review their policies and create new implementation plans. This step shows how regulatory oversight helps maintain proper financial conduct in investment firms.
My experience working with similar cases has shown that such measures often lead to improved compliance practices and better client protection.
Civil penalties and suspension for Michael DeRosa
The SEC’s settlement with One Oak Capital led to serious consequences for Michael DeRosa. The SEC imposed a $75,000 civil penalty on DeRosa for his role in the financial misconduct.
DeRosa must serve a nine-month suspension from working in the securities industry. This marks his first disciplinary action with the SEC.
The enforcement action reflects the SEC’s strict stance on regulatory compliance violations. DeRosa’s professional suspension restricts his ability to serve as an investment advisor during this period.
His case serves as a clear example of the SEC’s commitment to enforcing proper financial practices in the securities industry.
Conclusion
This case serves as a stark reminder about the vital role of proper client disclosures in investment management. Financial advisors must put their clients’ interests first and provide clear information about fees and services.
One Oak Capital’s penalties show how seriously regulators take violations of fiduciary duties. Investment firms need strong compliance systems to prevent similar breaches of trust.
Clients should stay informed about their accounts and ask questions about any changes to fee structures or account types.
