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# Other

# SEC v. Westport Capital Markets, LLC, et al. Case No. 3:17-cv-2064-JAM (D. Conn.)

                            Nov. 1, 2022                       

On December 11, 2017, the Commission filed a complaint against Westport Capital Markets, LLC (“Westport”) and Christopher E. McClure (“McClure,” and collectively with Westport, the “Defendants”). The Commission alleged that that Westport, a dually registered investment adviser and broker-dealer, and Westport's principal, Christopher E. McClure, repeatedly invested advisory clients' funds in risky securities that generated hundreds of thousands of dollars in undisclosed mark-ups for Westport and resulted in more than $1 million in losses for clients. According to the complaint, Westport for several years purchased securities from underwriters at a discount to the public offering price and then, acting as a principal for its own account, re-sold those same securities to its advisory clients at higher prices without disclosing the mark-up. Westport and McClure sometimes held the securities in client accounts for only a short period before re-selling the securities and then investing client funds in another offering with a mark-up. The Commission further alleged that Westport and McClure made false and misleading representations to clients regarding the compensation that Westport would receive from their accounts, and that Westport and McClure defrauded a client by acting contrary to the client's express objectives. In addition, the Commission alleged that Westport, in its capacity as a broker-dealer, received undisclosed mutual fund distribution fees, known as 12b-1 fees, when Westport and McClure invested advisory clients in certain mutual fund share classes. The complaint alleged that Westport's advisory clients paid approximately $780,000 in undisclosed mark-ups and fees on top of the advisory fees they paid the firm. *See* the Complaint.

On July 6, 2021, the Court entered final judgments against the Defendants (collectively, the “Final Judgments”) finding them jointly and severally liable for disgorgement and prejudgment interest of $820,761.00, and ordering Westport and McClure to pay civil penalties of $500,000 and $200,000, respectively. The Final Judgments order the Commission to hold all funds, together with any interest and income earned thereon (the “Fund”), pending further order of the Court. *See* the Westport’s Final Judgment and McClure’s Final Judgment.

As of June 1, 2022, a total of $94,368.37 has paid by one or both of the Defendants. The Fund is being held in an interest-being account with the United States Department of Treasury’s Bureau of Fiscal Service, and any additional collections will be added to it.

On July 29, 2022, the Commission filed a motion for an order appointing Heffler, Radetich & Saitta LLP, as the Tax Administrator for the Fund and authorizing the Commission to approve the payment of future tax obligations and tax related fees and expenses without further order of the Court. *See* the Commission’s Motion.

On August 9, 2022, the Court, absent objection, entered a text only order granting the Commission’s Motion.

On December 8, 2022, the Commission filed a Motion for an Order to Show Cause why the Court should not approve the SEC’s proposed distribution plan, accompanied by a memorandum in support of the proposed distribution plan. *See* the Commission’s Motion Papers.

On December 12, 2022, the Court granted the Commission’s motion, entering an Order to Show Cause that directs, in part, “individuals and entities who were clients of Westport and paid undisclosed markups during the period January 1, 2012 through June 30, 2015, inclusive, and/or 12b-1 fees during the period January 1, 2012 through September 14, 2017, inclusive (“Preliminary Claimant”), or other interested parties, within forty (40) days from the entry of the Order (the “Objection Due Date”), shall show cause, if there is any, why this Court should not enter an Order approving the Proposed Plan.” *See* Order to Show Cause and the Proposed Plan.

On January 25, 2023, the Commission filed a Notice stating that it had received no objections to the Proposed Plan and requesting that the Court approve the Plan.

On January 26, 2023, the Court approved the Plan of Distribution. *See* the Order and Plan of Distribution.

For more information, please contact the Commission:

Office of DistributionsEmail: ENFOfficeofDistributions@sec.gov

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