Excessive Fees, False Account Statements Cited in Revocation of Investment Adviser

Mar 24

Texas Securities Commissioner John Morgan on March 23 entered a Disciplinary Order that will revoke the registration of Sarah Helen Hancock, a Dallas investment adviser representative who withdrew grossly excessive amounts of money from clients’ accounts. Hancock provided at least one client with inaccurate account values to justify the amount she collected as management fees.

Hancock’s registration will be revoked April 15. Prior to that date Hancock will notify current and former clients of Hancock-Smith LLC that the Securities Commissioner has revoked her license. Hancock will provide clients with the name of a licensed individual who will oversee any activity at the firm that requires licensing.

Between 2007 and 2015, Hancock collected money from clients in amounts that far exceeded what those clients were contractually required to pay. 

From 2007 through 2009, Hancock withdrew $1.6 million as management fees from a single client’s account. Hancock’s written agreement with clients called for a 1% annual fee based on the amount of money she managed for them. The actual fees that should have been withdrawn from the client’s account between 2007 and 2009 totaled approximately $45,000, meaning Hancock withdrew $1.5 million more than she should have. 

During an investigation, Hancock told State Securities Board staff that some of the $1.5 million was used to make loans to a company named Traveler Overseas Holdings LLC, which shared office space with Hancock. But Hancock couldn’t provide any documentation associated with loans, nor were there any records that payments were made to Traveler Overseas on behalf of the client.

Hancock established a pattern of withdrawing fees from the client’s account and depositing them into Hancock-Smith’s account, where the money would all but evaporate. 

For example, in August 2007, Hancock withdrew $62,320 from the client’s account. By the end of the month, Hancock-Smith’s account balance had dwindled to $1,300 even though no payments were made to Traveler Overseas. In August and September 2007, Hancock-Smith issued $51,000 in checks to Hancock and paid $63,000 to American Express. 

Hancock continued to collect excessive fees from multiple clients during 2010 through 2015, providing invoices to at least one client that vastly overstated the client’s account balance. Based on the contractual 1% management fee, inflated portfolio values were used to justify fee payments far in excess of what was justified.

During the State Securities Board staff’s investigation into Hancock’s withdrawals from client accounts, Hancock provided the Staff with incomplete and unsubstantiated claims regarding the amounts she collected as fees.