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Securities and Exchange Commission v. Cody

United States District Court, D. Massachusetts

December 5, 2019



          F. Dennis Saylor IV United States District Judge.

         This is a civil enforcement action brought by the Securities and Exchange Commission against Richard G. Cody and a limited liability company through which he did business, Boston Investment Partners, LLC. The complaint alleges that Cody, an investment adviser, lied to several clients about their retirement accounts and then undertook a variety of deceptive and fraudulent acts to hide his misconduct. It further alleges that Cody violated § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b); Rule 10b-5, 17 C.F.R. § 340.10b-5; and §§ 206(1)-(2) of the Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-6(1)-(2).

         The SEC has moved for summary judgment in its favor. For the following reasons, the motion will be granted.

         I. Background

         A. Factual Background

         Richard G. Cody was an investment adviser and/or broker representative at all times relevant to the following events. (Indict. ¶ 1-2). Boston Investment Partners, LLC was a limited liability company through which Cody conducted some of his business. (Id. ¶ 3).

         From 1998 through September 2016, Cody worked as an investment adviser at a variety of different firms. (Rule 11 Hearing, 17-cr-10291 Dkt. #102, 13:19-14:1). In that capacity, he managed the retirement accounts for numerous individuals, which included investing, reporting, and disbursing client funds. (Id. 14:2-11).

         Maureen and Paul M., Kenneth E., and Carol and Ray B. were clients of Cody from May 2005 to September 2016. (Id. 14:2-8). Each of those sets of clients involved at least one person who, after a long career at Verizon, retired, and elected to receive their pensions as lump sums. (Id.). Those funds were then entrusted to Cody for investment. (Id.).

         In his dealings with each of those clients, Cody “willfully engaged in transactions, practices, and courses of business that were fraudulent, deceptive, and manipulative.” (Id. 14:12-18). In essence, he falsely assured the victims that any account balances remained high and that their distributions came from interest income. (Id. 14:16-18). In fact, the accounts suffered significant losses, especially in 2008, and the value of the accounts was steadily declining. (Id. at 14:15-21).

         Cody hid that fact from his victims. On one occasion, for example, Kenneth E. called Cody after reviewing a brokerage-firm statement indicating that his account had declined in value. (Id. 14:22-25). Rather than tell the truth, Cody falsely told him that he had additional funds invested elsewhere in bonds, and that the statement did not reflect the full value of his accounts. (Id.).

         Cody also created false documents to conceal his deception from his victims. In April 2016, Maureen M. told him that she needed to borrow $10, 000 from her retirement account. (Id. 15:2-5). At that point, her accounts were basically empty. (Id.). Cody nonetheless told her that her money was in an annuity with Sun Life and proceeded to create a falsified Sun Life annuity form with various false details handwritten on the form. (Id. 15:5-10). That same year, he sent both Maureen M. and Kenneth E. falsified IRS Form 1099, reflecting about $30, 000 in distributions. (Id. 15:11-18). Both individuals, however, had retirement accounts that were empty, or nearly so, during this time. (Id. 15:11-22).

         In January 2013, Cody was suspended from associating with any FINRA member firm a one-year period. (Id. 15:23-25). He also concealed that fact from his victims. He covertly transferred his accounts to his wife, Jill Cody, by submitting documents with forged signatures. (Id. 15:25-16:2). His victims were never told of the suspension.

         Beginning in 2014, the retirement savings of Maureen M. and Kenneth E. were fully depleted. Cody nonetheless paid the monthly payments that they expected to receive from his own accounts. Because of that, neither victim was alerted as to the depleted status of their account. (Id. 16:3-8).

         Eventually, the deception was discovered. Cody was indicted for, and eventually pleaded guilty to, securities fraud.

         B. Procedural History

         The SEC filed this action on December 12, 2016. On October 2, 2017, the United States filed a motion to intervene and to stay discovery pending completion of the criminal case. The Court ...

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