The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian financial advisory firm’s founder has emerged victorious in his battle to force a former employer to cover legal fees incurred in fighting US federal regulators.

Benjamin Alderson, who formed Sandyport-based Touchstone Advisory in 2017, saw a US arbitrator uphold his demand that DeVere USA pay his legal fees and expenses in defending a Securities & Exchange Commission (SEC) action against him.

That action involves alleged acts that occurred when he worked for DeVere prior to leading a management buyout of the latter’s Bahamian subsidiary for £100,000 in May 2017, and its recasting as Touchstone Advisory.

Retired US justice Theodore Katz, in his January 2, 2019, arbitration ruling, noted that the DeVere Bahamas sales agreement, signed by both Mr Alderson and Nigel Green, the group’s founder, contained language that pledged to “promptly” pay legal fees owed to his US attorneys.

However, DeVere fell behind to the extent that Mr Alderson’s legal representatives were owed some $97,694 for defending him against an SEC lawsuit that alleges he and a former colleague “defrauded clients” by “concealing serious conflicts of interest” and misleading them about the advantages of an offshore pension plan.

DeVere ultimately settled the SEC’s action against itself for $8m in June 2018, leaving Mr Alderson fighting on two fronts - against his former employer for payment of his legal costs while battling the US capital market regulator over allegations that he vehemently denies.

Mr Alderson, in his defence to the SEC action that has been obtained by Tribune Business, pins the blame on DeVere principal Mr Green by arguing that everything he did was directed, reviewed and approved at the corporate level.

He claims to have been “misled” by Mr Green over the level of fees charged to clients, and accuses his former boss of “a conflict” by having ownership interests in custodians and fund distribution companies that provided securities to DeVere’s US-based clients.

Mr Alderson’s lawsuit against DeVere, filed last year in the southern New York federal court, was stayed in favour of arbitration proceedings that ultimately went in the Touchstone founder’s favour, while the SEC’s case against him has currently been placed on hold as a result of the partial US government shutdown that has furloughed most of the regulator’s staff.

The Touchstone Advisory founder is understood to have now left The Bahamas and returned to the UK, but sources said both he and his co-accused in the SEC case, Bradley Hamilton were well-known figures in the Bahamian financial services industry when here.

The Securities Commission’s 2016 list of licensees names both Messrs Alderson and Hamilton as “registered personnel” for DeVere Bahamas, together with Touchstone Advisory’s current managing director, Adrian Flambard. Other Touchstone executives, Felicity Rice and Zachary Evans, were also listed as DeVere Bahamas “registered personnel”.

Touchstone, whose address is still given as Unit 2 in Sandyport’s Olde Town Marina, appears to have effectively picked up where DeVere Bahamas left off. Its website shows a focus on pension schemes targeted at UK expatriates, the same business its predecessor was involved in, together with wealth management and financial planning services.

There is no suggestion that Touchstone and its staff have done anything wrong, and they are not named and involved in Mr Alderson’s litigation with the SEC, which he continues to contest vigorously.

The US regulator, in its lawsuit filed last summer, alleged that both Mr Alderson and Mr Hamilton earned $2.6m and $2.1m, respectively, from a 7 percent commission fee paid to DeVere by other financial services firms it did business with.

The crux of the SEC’s case is that the duo concealed from their clients, mostly UK expatriates, that these fees were “their primary form of compensation” and that it was “a material conflict of interest”.

It is accusing them of “defrauding hundreds of clients and prospective clients resident in the US by misleading them about the benefits of irreversibly transferring their UK pensions to an offshore pension plan while concealing serious conflicts of interest including the lucrative commissions each stood to - and did - receive”.

“In doing so, defendants violated the fiduciary duty that every investment adviser has to its clients and prospective clients: to put the client’s best interests first, employ utmost honesty, and fully disclose all material information, including actual and potential conflicts of interest,” the SEC alleged.

“Though Alderson and Hamilton were investment advisers with a fiduciary duty to provide full and fair disclosure of all material facts, they nonetheless provided advice that was self-interested and designed to push clients and prospective clients toward a [UK pension] transfer which, when effected, generated for Defendants millions of dollars in undisclosed commissions.”

The SEC alleged that the non-disclosures included the commissions DeVere received from third party financial services providers that were equivalent to 7 percent of the value of the transferred pensions.

“Alderson and Hamilton knew that the 7 percent upfront commission constituted their primary form of compensation, and that it was undisclosed,” the US regulator claimed.

“Moreover, when clients and prospective clients asked about fees or how defendants were remunerated, defendants misleadingly referred to a 1 percent advisory fee, while purposely omitting mention of the 7 percent upfront commission or their share thereof.”

The SEC also alleged that while DeVere’s pension clients were told they had access to over 15,000 different securities investments options, in reality they were restricted to limited choices that “at most was less than 100”.

Finally, the US capital markets regulator claimed that clients were misled about the tax advantages of transferring their pensions, as this could be considered “a taxable event” by the Internal Revenue Service (IRS).

But, denying all allegations against him, Mr Alderson’s defence blames DeVere’s principal, Mr Green, for any issues relating to non-disclosure and conflicts of interest. He adds that the 7 percent “upfront commission” identified by the SEC may have been even greater.

“Such compensation was disclosed to clients after such disclosures were directed, reviewed and approved by DeVere and the group’s legal and compliance department under the supervision and control of the founder and controlling principal of the deVere Group, Nigel Green,” Mr Alderson alleged.

“Alderson further specifically denies that Alderson knew all the fees being paid to the DeVere Group, as to which information Alderson was misled by Green and others. Alderson further specifically denies that [DeVere] received only 7 percent in fees, an amount which he now is informed and believes he was misled about by Green and others, and which may have been higher.”

Mr Alderson alleged that the majority of these commissions never went to himself, as they were retained by Mr Green and DeVere. He also blamed his former boss for restricting client investment options, describing this as “a conflict” and claiming he looked after client interests by making investments outside the “preferred” list.