The Securities and Exchange Commission has charged the owner of an Indianapolis-area investment advisory firm with violating federal law by selling $13 million in high-risk securities to more than 120 clients without disclosing that the firm stood to receive exorbitant commissions of up to 18 percent from those sales.
The civil complaint, filed Friday, alleges that former middle school math teacher Tamara “Tammie” Steele, owner of Pendleton-based Steele Financial Inc., “took advantage” of current or former teachers and other workers in public education by selling them “extremely risky securities” issued by private company Behavioral Recognition Systems Inc., or BRS.
Steele Financial Inc., 131 N Pendleton Ave., was founded by Steele in 2000 and manages about $60 million for clients.
BRS, a Houston-based software firm now known as Giant Gray Inc., was charged with fraud by the SEC last year.
SEC officials said Steele, 49, received $2.5 million in commissions from BRS in return for recommending and selling the company's securities from December 2012 to October 2016.
The SEC estimated that up to half of Steele’s 450 advisory clients were current or former teachers and other workers in public education.
“Generally, Steele’s clients were not sophisticated investors and did not often invest directly in individual stocks,” the SEC said in its complaint.
The complaint said Steele concealed her firm’s sales efforts on behalf of BRS from her clients and from the broker-dealer with which she was affiliated at the time. She did so by submitting false documents, including letters, invoices and consulting agreements, the SEC said.
The sales efforts escalated even though Steele “knew that BRS was in dire financial condition” and began missing interest payments on its promissory notes.
“We allege that Steele took advantage of her own advisory clients, including clients whom she herself described as ‘two-pension, two Social Security families,’” said Antonia Chion, associate director of the SEC’s Division of Enforcement, in written comments. “Investment advisers must put their clients’ interests ahead of their own and make full and fair disclosure of financial conflicts of interest.”
The complaint charges Steele and her firm with violating the antifraud and broker-dealer registration provisions of federal securities laws. The SEC is seeking disgorgement of ill-gotten gains with interest, penalties, and permanent injunctions.
Mark Maddox, an attorney with Maddox Hargett & Caruso P.C. and a former securities commissioner for Indiana, said he has represented numerous Steele clients who invested in the BRS securities.
“The investors I’ve seen have fallen into two categories: school teachers who Tammie may have known or worked with when she was a teacher, and women who Tammie played tennis with in a women’s league,” Maddox said in an email to IBJ. “The investments were highly risky, but portrayed to investors as very safe by Tammie.”
Maddox said some clients have recovered some of their losses by bringing Financial Industry Regulatory Authority arbitration cases against Steele.
Last month, arbitrators ordered Steele to pay $111,700 in compensatory damages plus interest and costs to Denise Fry and the Denise M. Fry Living Fry Trust, and $55,408 plus interest and costs to Donna Sullivan.
Steele also was told to pay Maddox legal fees of $58,000.
Steele did not immediately return a phone message left Monday afternoon. Steele's attorney, Robert Hartley of the law firm Frost Brown Todd, told Financial-Planning.com that she disagrees with the SEC’s allegations.