The Boston stockbroker who helped former House Speaker Tom Foley pocket an extra $100,000 during his final years in Congress got spanked this week for doing questionable market favors for friends.
The Securities and Exchange Commission fined and censured Peter de Roetth and his partner in Account Management Corp. for not disclosing its help to favored clients, such as Foley.
The Wall Street watchdog agency also reported that some of the firm’s favored clients were allowed to invest without having enough money to pay for the stocks. Profits from selling the investments were used to pay for them, the SEC said.
The SEC did not mention Foley by name, but the former Spokane congressman severed ties with the firm in 1993 after questions were raised about his quick profits from initial public offerings.
The SEC found no wrongdoing by the favored clients, and did not seek to recover profits from them. De Roetth and his partner, Richard C. Albright, were fined $100,000.
Foley and de Roetth were close friends long before the Boston small-stock guru began turning Foley’s spare cash into Wall Street payoffs.
As brainy teenagers, the South Hill twosome read Winston Churchill speeches aloud to each other and starred on the state champion Gonzaga Prep debate team.
Foley’s ongoing relationship with de Roetth resurfaced in 1993. Foley’s financial disclosure statements revealed De Roetth gave him access to lucrative new stock issues.
The quick profits Foley enjoyed in initial public stock offerings for four years are usually only available to far bigger investors.
Some Republican congressman tried to start an ethics investigation, claiming Foley’s deals resembled unreported gifts.
Foley, who lost a re-election bid last fall, reportedly was en route to Paris Monday, and could not be reached for comment.
Juan Marcellino, an SEC administrator in Boston, said Monday the action against the firm was civil, not criminal.
The SEC said DeRoetth and Albright directed shares in initial public offerings to 20 friends who made a total of $218,460 from January 1992 through June 1993.
During the 18 months, the friends, who paid no management fees, got more profits from 34 offerings than the firm’s major clients who paid regular fees.
The SEC said the investment firm breached its fiduciary duties to other clients by not disclosing the preferential treatment given the 20 friends.
“Investment advisers owe fiduciary duties to all of their clients in this particular matter, not just the adviser-favored clients who are close friends,” Marcellino said.
DeRoetth said this week the firm allocated the stock offerings at its own discretion and the friends were “predominantly school teachers and artists we thought could use $1,000 here and there.”
He defended the practice and said the offerings to Foley and others were not appropriate for the company’s long-term portfolio, and the money involved was too small to affect other clients’ returns.
He said he will continue to dole out public offering shares as he likes, but will tell other clients what he is doing.
“Nobody says we can’t do this. In fact, we’re still doing it,” he said.
“We’ve been audited regularly for the 30 years we’ve been in business, and we’ve done exactly what they described that we do for 25 years,” he said.