After being fired from Waddell & Reed, a father and son advisory team lied to clients, saying they left the firm of their own accord, but could still access their accounts, according to charges filed by the Securities and Exchange Commission.
The commission said the duo went as far as impersonating clients on calls with their former firm.
The commission charged Kevin Kane and son Sean Michael Kane in Pennsylvania federal court this week. Though their employer is named only as ‘Investment Adviser 1’ in the complaint, BrokerCheck records reveal the Kanes both worked for Waddell & Reed during the time period in question.
The elder Kane joined in 2013, with previous stints at Lehman Brothers, Citigroup and Wells Fargo since entering the industry in 1992. His son Sean joined Waddell & Reed in 2018, having worked in a number of firms since 2010. While working at Waddell & Reed, they operated as a team, sharing clients and compensation, and oversaw the investments of more than 100 peopole with over $27 million in managed assets.
But after an investigation, Waddell & Reed found the Kanes had undisclosed outside business associations, shared client information with a third-party and failed to protect client information by texting clients, sending them confidential information through encrypted email and use of personal accounts, all in violation of firm policies, according to the SEC.
In response, the firm fired the duo on Feb. 23, 2021 and sent a letter to their clients several days later stating the team was no longer with Waddell & Reed (though it didn’t go into the specifics of their departure), according to the SEC. The firm warned the Kanes not to use any confidential client information, while the fired duo sought out another advisor to work with in order to transfer their business.
But the duo kept information on their clients in violation of the firm’s policies, and clients of the Kanes reached out to them after getting the letter from Waddell & Reed. The duo told clients they had left voluntarily, but that they were still associated with Waddell & Reed and could access their accounts.
None of this was true, according to the commission.
During this period, Waddell & Reed had been finalizing the sale of its brokerage business to LPL Financial, a $300 million acquisition originally announced in late 2020. In several texts and phone calls with clients, the Kanes allegedly told clients their departure from the firm was based on the LPL deal (LPL is named as ‘Investment Adviser 2’ in the complaint).
“On March 1, 2021, after learning about the Client Letter, Client A texted Kevin Kane asking whether the Kanes had ‘left [Investment Adviser 1]?!?’ and if so, ‘Now what?’” the complaint read. “Kevin Kane replied, falsely, ‘No. Not yet. Lol. [Investment Adviser 1] was bought by [Investment Adviser 2]. Not happy with it but I’m still at my desk.’”
With clients, the Kanes continued to blame the acquisition and not their firing as the reason for their leaving, according to the commission. Starting in early March, about a week after they had been fired, some clients began asking the Kanes to purchase securities with their Waddell & Reed advisory accounts.
When clients requested this, Kevin and Sean Kane began calling Waddell & Reed and impersonating clients to make the transactions, using the client information they had not returned to the firm, according to the commission. This included an unnamed investor known as ‘Client H,’ who called Sean Kane about a disbursement from his account at Waddell & Reed. Again, Kane didn’t disclose that he’d been fired and no longer had access, the commission argued.
Instead, he used the client’s information, including their birthday, Social Security number and address to impersonate them on a call with Waddell & Reed, according to the SEC.
“Sean Kane attempted to disguise his identity from (Waddell & Reed) by entering *67 before he called the firm,” the complaint read. “Entering *67 before making a call allows a user to block their Caller ID name and number.”
But the alleged ruse did not last long; on March 18, 2021 Waddell & Reed began suspecting the Kanes were impersonating their clients in calls, and five days later, the firm sent cease-and-desist letters to the duo, ordering them to stop and to return the client information they still held, according to the commission.
Both Kanes have been registered with Cambridge Investment Research since late March of 2021, according to their respective BrokerCheck histories. Neither Kevin Kane or his son could immediately be reached for comment, and a spokesperson for Cambridge said the firm does not comment on "pending litigation matters."
The SEC is seeking permanent injunctions and civil penalties for the two advisors, according to the complaint.