PeachCap Tax & Advisory, LLC and two executives face a proposed class action that claims the investment firm has breached its fiduciary duty to clients by engaging in “quintessential self-dealing.”
The 27-page lawsuit out of Fulton County, Georgia Superior Court claims Atlanta-based PeachCap Advisory used its affiliated broker-dealer, non-party PeachCap Securities, to invest client funds and generate an “unauthorized and undisclosed commission for itself” while incurring “unnecessary and excessive costs” on behalf of clients. According to the breach-of-contract case, the defendants have failed to act in their clients’ best interests and chosen to use their affiliated broker-dealer to generate “unauthorized and unlawful commissions” despite the availability of lower-cost options.
“In sum, while purporting to act as fiduciaries with respect to client accounts, PeachCap Advisory [and the individual defendants] instead placed clients’ assets in conflicted transactions, without proper authorization, and from which they derived improper and unauthorized payments and enriched themselves and their affiliate to the detriment of Plaintiff and the other Class members,” the complaint alleges.
According to the lawsuit, PeachCap Advisory provides discretionary portfolio management services for which it charges clients a fee based on the market value of the assets it manages on their behalf, and not based on specific transactions. Discretionary portfolio management means the investment advisor is given authority to make investment decisions at its sole discretion and without obtaining a client’s approval to place, buy or sell orders on their behalf, the case explains.
The lawsuit relays that PeachCap Advisory not only operates under a strict fiduciary standard whereby the company is obligated to make decisions in a client’s best interests, but is also bound by specific terms under the advisory agreement signed by clients. Per the suit, the agreement provides that PeachCap may only be paid a flat, non-transaction-based fee for its discretionary advisory services, and may not profit from its clients in any other way. The case alleges, however, that PeachCap has breached both its fiduciary duties and its contracts with clients by accepting commissions from PeachCap Securities to invest client funds.
The plaintiff, a former PeachCap Advisory client, describes one occasion on which the defendants allegedly charged him a $19.99 commission to sell 153 shares through PeachCap Securities. Per the lawsuit, the defendants never explained the “above-market rate” commission or why PeachCap Advisory was receiving a kickback for the transaction.
“To the contrary, PeachCap Advisory specifically promised that it would not ‘be entitled to cash or other Client Assets held by the Qualified Custodian except those monies owed to Adviser in connection with the Adviser Compensation section of this Agreement,’” the complaint states.
Moreover, the lawsuit alleges PeachCap Advisory failed to disclose to clients that its practice of rewarding individual advisors for using PeachCap Securities might cause them to “trade excessively in client accounts to generate additional income” or use PeachCap Securities even when other broker-dealers could provide the same services at a lower cost.
The case looks to cover anyone over whose assets PeachCap Advisory had investment discretion pursuant to an advisory agreement or similar agreement and for whom PeachCap Advisory used its discretionary authority to invest their assets through PeachCap Securities as the broker-dealer.
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