Holland & Knight continues its SECond Opinions Blog Summer Series featuring posts written and researched by the associates from our Securities Enforcement Defense Team. This blog comes from Washington, D.C., Associate Ceijenia Cornelius, who focuses her practice on banking and consumer protection regulatory matters, complex commercial litigation, white collar matters and securities law.
The SEC on June 2, 2025, filed a complaint against David A. Nagler and New Line Capital LLC (Defendants) in the U.S. District Court for the District of New Mexico for allegedly breaching their fiduciary duties and defrauding their investment advisory clients, many of whom were elderly retirees who relied on their advisory accounts for income.1 According to the SEC, the Defendants made false and misleading fee disclosures, including that New Line's annual advisory fees would not exceed 2 percent of a client's assets under management, and failed to disclose related conflicts of interest. The SEC claims the Defendants charged numerous advisory clients more than 2 percent in fees. Further, the complaint alleges that the Defendants misleadingly disclosed that New Line "may" offer hourly services when, in fact, New Line was providing such services without informing clients about the charges or financial conflicts of interest arising from their charging of hourly fees.
Background
Nagler is the founder, managing member and chief commercial officer of New Line. From April 2019 through December 2024, the Defendants were not registered with the SEC as investment advisers but were registered with various states throughout the relevant period, including New Mexico, Colorado and California for Nagler and New Mexico, Colorado, New Jersey, California and Connecticut for New Line.
As the SEC points out in the complaint, the Defendants acknowledged they owed fiduciary duties to their clients in New Line's Form ADV, which disclosed that "[w]e have a duty to you to exercise our authority and responsibility for your benefit, to place your interests first, and to refrain from having outside interests that conflict with your interests" and "[w]e must avoid any circumstances that might adversely affect or appear to affect our duty of complete loyalty to you." The complaint notes that the Defendants also acknowledged their fiduciary obligations to clients in New Line's Adviser Compliance and Supervisory Procedures Manual.
As fiduciaries, the Defendants were obligated to provide full and fair disclosure of all material facts. The SEC alleges that the Defendants violated their fiduciary duties by providing false and misleading disclosures in investment advisory agreements that led clients to believe that advisory fees would not exceed 2 percent of clients' assets under management. However, during the relevant period, New Line allegedly charged clients approximately $125,000 in advisory fees in excess of the 2 percent cap disclosed in the agreements. The complaint alleges that the Defendants failed to disclose these excessive fees, failed to disclose that Nagler used subjective criteria such as how "demanding" a client was to determine fees and failed to provide clients itemized invoices describing the fees charged.
The SEC also claims that the Defendants charged clients more than $325,000 in hourly "consulting fees" without providing notice to clients that they would charge such fees and without client knowledge or consent. According to the SEC, this practice created undisclosed conflicts of interest because the Defendants had a financial incentive to maximize the amount of such fees.
Violations
In the complaint, the SEC charges Nagler and New Line with fraud and breach of fiduciary duties in violation of the federal securities laws. Specifically, the complaint alleges the Defendants violated antifraud provisions of the Investment Advisers Act of 1940 (Advisers Act), Sections 206(1) and 206(2), which apply to all investment advisers even if they are not registered with the SEC. The SEC seeks permanent injunctions from violations of Advisers Act Sections 206(1) and 206(2), conduct-based injunctions prohibiting the Defendants from receiving compensation from advisory clients unless they provide quarterly written invoices disclosing all fees and charges, disgorgement of ill-gotten gains with prejudgment interest and civil penalties from both Nagler and New Line. On July 3, 2025, the court granted the Defendants' unopposed motion to transfer venue and transferred the case to U.S. the District Court for the District of Colorado.2 The case remains pending.
The SEC's focus on enforcement actions against investment advisers for undisclosed conflicts of interest and excessive and undisclosed fees continues under Chair Paul Atkins' tenure, even though New Line is a relatively small adviser with $29 million in assets under management. Similarly situated advisers may want to take note and scrub their Form ADVs, disclosure documents or anything provided to clients of "may" language when a particular practice is, in fact, happening.
Footnotes
1. SEC v. New Line Capital, LLC, No. 25-cv-00516 (D.N.M. June 2, 2025).
2. SEC v. New Line Capital, LLC, No. 25-cv-02078 (D. Colo. July 7, 2025).
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