Securities Regulation Daily Wrap Up, INVESTMENT ADVISERS—C.D. Cal.: SEC wins $4M judgment against advisory firm and adviser that defrauded clients, (Oct 6, 2025)

By John Filar Atwood

The adviser misappropriated funds from nine clients to buy and improve her own properties, pay personal expenses, buy luxury vehicles, and buy and operate her own food-related businesses.

A California judge granted an SEC motion for default judgment against investment adviser Vivid Financial Management and one of its representatives, but reduced the SEC’s request for $2.24 million in disgorgement to just over $2 million. The individual defendant had defrauded nine clients over six years by using their investments for personal expenses. The judge stated that Vivid, jointly and severally with the individual defendant, must pay $2,005,330 in disgorgement with prejudgment interest, and the individual adviser must pay $2,005,330 in civil penalties (SEC v. Darrah, No. 2:23-cv-08843 (C.D. Cal. Oct. 2, 2025)).

Vivid did not contest the entry of default since the individual did not respond to the SEC’s motion. Vivid is permanently enjoined from committing future violations of 1933 Act Section 17(a), 1934 Act Section 10(b), and Investment Advisers Act Sections 206(1), 206(2), 206(4), and 207. HERE

Misappropriation of funds. From 2015 to January 2022, Vivid operated as an SEC-registered investment adviser, with the individual defendant serving as its president, chief compliance officer, and a one-third shareholder. In January 2022, Vivid’s owners sold Vivid’s advisory business and terminated its SEC registration.

Beginning in 2016, the individual misappropriated approximately $2.25 million from nine of her advisory clients by gaining control of their assets, liquidating their securities, and taking their money to buy her own properties and luxury vehicles, pay personal expenses, and buy and operate her own food-related businesses. The SEC found that she primarily targeted elderly female advisory clients who gave her discretionary authority over their brokerage accounts and power of attorney to handle their financial affairs. Once she gained control over her clients’ brokerage and bank accounts, the individual liquidated their securities, transferred the funds from their brokerage accounts to their bank accounts, and withdrew the money for herself.

The individual took several steps to conceal the scheme including making filings with the SEC wherein she falsely stated that no Vivid-related person had custody of any advisory clients’ cash, bank accounts, or securities, Vivid’s clients received at least quarterly account statements directly from custodians, and Vivid had adopted safeguards to protect its clients’ money, including that it maintained records showing that the accounts receiving money from its clients’ brokerage accounts were not a related party of Vivid.

The SEC originally filed suit in October 2023 and then moved for default judgment against Vivid when the individual did not respond to the charges.

Fraud. On the issue of fraud, the court ruled that the SEC’s allegations regarding the individual’s scheme to defraud her and Vivid’s clients were sufficient to show that Vivid violated the antifraud provisions of 1933 Act Section 17(a)(1), 1934 Act Section 10(b), Rules 10b-5(a) and (c), and Investment Advisers Act Sections 206(1) and 206(2).

With regard to the Commission’s allegation that Vivid violated Investment Advisers Act Rule 206(4)-7, the court found that the SEC stated a claim on which it may recover. The court noted that the complaint alleged that Vivid negligently failed to adopt and implement policies or procedures to prevent it or its employees from using client money to benefit themselves, to fulfill the fiduciary duty owed to advisory clients, and concerning custody of client assets.

As the president and chief compliance officer of Vivid, the individual aided and abetted Vivid by failing to adopt or implement the policies and procedures and by carrying out her fraudulent scheme.

Joint and several liability. With respect to joint and several liability for disgorgement, the court stated that other courts interpreting SEC v. Liu “have held individuals [and entities] jointly responsible when the individual exercised decision-making authority over the entity, controlled an entity’s finances, or served as its officer.”

Vivid argued that it was at most a passive, non-beneficiary of the individual’s conduct, but the court found that claim to be unsupported by the allegations. Specifically, eight of the nine clients from whom the individual misappropriated funds were also Vivid’s clients, and the individual was the president, chief compliance officer, and one-third shareholder of Vivid. The court concluded, therefore, that Vivid and the individual were partners engaged in concerted wrongdoing and that joint and several liability is warranted.

Disgorgement calculation. The SEC had argued that disgorgement should include $242,000 misappropriated from a specific client who retained the individual after Vivid had sold its investment advisory business. The court noted that the SEC did not allege that the client ever retained Vivid as her investment adviser. Moreover, the court found that the SEC did not explain how Vivid was a partner to the wrongdoing suffered by that client such that joint and several liability should attach. Accordingly, the court denied the request to include the $242,000 in the final disgorgement total.

The case is No. 2:23-cv-08843.

Judge: Fischer, D.

Attorneys: Daniel S. Lim for the SEC. Bruce M. Lewitas (Lewitas Hyman PC) for Julie Anne Darrah.

Companies: Vivid Financial Management, Inc.

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