Delaware DOJ files complaint against adviser suspected of investment fraud

A former Delaware investment adviser and his firm are being pursued by the Delaware Department of Justice for fraud. The attorney general announced that an administrative complaint was filed against the investment adviser and his firm for engaging in dishonest and unethical practices. The complaint alleges that the adviser withdrew registration from the state but continues to operate in Delaware.

According to the claim, investigators in the Delaware DOJ's Investor Protection Unit found that Elbert C. Smalls and his firm, Sun Financial, violated regulations and acted outside professional norms, including billing clients advisory fees for his travel, charging an hourly fee to replace lost commission-based revenue and failing to maintain proper records.

The action follows a Federal Trade Commission report that ranks Delaware among the top 15 states reporting investment-related fraud.

Adviser dodges regulators and flees to new states

The complaint alleges that some clients were charged fees exceeding 30% of their managed assets annually. In one instance, Sun Financial billed clients hourly fees as high as 72% of their managed assets to replace commissions from matured annuities. The investigation revealed that this fee structure change was made without clients’ knowledge.

After the IPU began its investigation, Smalls unregistered his company in Delaware and later registered as an investment adviser in Maryland and Texas under a different company name, Winyah Financial Services, LLC. The DOJ alleges that Sun Financial continues to operate as an unregistered adviser in Delaware from Smalls’s home in Bethany Beach.

“Investment professionals may not simply choose to avoid IPU oversight by operating while unregistered,” Attorney General Kathy Jennings said in a statement.

The department is seeking restitution for clients who paid excessive fees and to stop former investment adviser Elbert C. Smalls and his firm, Winyah Financial Services, LLC (previously Sun Financial Services, Inc.), from operating in the state.

Delawareans fleeced out of $22.3M by investment scammers in Q1

Delawareans lost $22,312,486 to investor-related fraud schemes in the first quarter of 2024, according to the FTC’s Consumer Sentinel Network. During this period, the FTC received 23,270 investment-related fraud reports from Delaware, with a median loss of $490 per case. Delaware ranks No. 12 out of the top 15 states reporting investment-related fraud.

The IPU advises investors to verify the registration of their financial professionals through brokercheck.finra.org and adviserinfo.sec.gov . Additionally, those with concerns or who wish to file a complaint can contact the Investor Protection Unit at Investor.Protection@delaware.gov.

You can c ontact Anitra Johnson at ajohnson@delawareonline.com .

This article originally appeared on Delaware News Journal: Delaware DOJ files complaint against adviser suspected of investment fraud