Under Texas law, an investment adviser who lies to clients about how their money is performing can be prosecuted for fraud in the rendering of investment-advisory services — a distinct offense that turns on the special duty an adviser owes, not just on any single misstatement. A Texas-based fund manager recently drew national attention after a court found he had funneled almost all of his clients’ money into one failing investment, hid the losses, and told investors they were making profits, with professional athletes reportedly among those affected. The case was resolved in federal court on wire-fraud terms, but the same conduct in a Frisco or Dallas-Fort Worth state court would put the Texas Securities Act’s investment-adviser fraud provisions squarely at the center.
The following is general legal commentary from L & L Law Group, PLLC on how Texas law treats these issues in Collin County and across the Dallas-Fort Worth area. It is not legal advice about any specific case, and everyone is presumed innocent unless and until proven guilty.
Is It a Crime in Texas for an Investment Adviser to Misreport Client Returns?
Yes. Under the Texas Securities Act, it is an offense for an investment adviser or adviser representative to engage in fraud or a fraudulent practice while rendering services as an adviser. The Act, now codified in the Texas Government Code and enforced by the Texas State Securities Board, makes it unlawful under Section 4004.052 for an adviser to employ a device, scheme, or artifice to defraud a client, or to engage in a course of business that operates as a fraud or deceit. Telling clients their accounts are growing when the adviser knows the underlying investment has collapsed fits that description directly. This adviser-specific fraud provision is separate from the general anti-fraud rules that apply to the sale of securities, because an adviser is judged against the heightened duty owed to the very clients who trusted the adviser to manage their money.
What Makes Investment-Adviser Fraud Different From Ordinary Securities Fraud?
The key difference is the fiduciary duty an adviser owes. A person simply selling a security must not make untrue statements, but an investment adviser occupies a position of trust and is expected to act in the client’s leading interest, disclose conflicts, and give honest information about performance and risk. When an adviser instead conceals losses, misstates returns, or hides that client funds were concentrated into a single risky position, the breach of that trusted relationship is itself central to the offense. Texas law treats the adviser relationship as one where silence and half-truths can be just as unlawful as outright lies, because clients rely on the adviser precisely because they cannot easily check the underlying facts themselves.
How Does Concentrating Client Money Into One Investment Affect a Texas Case?
Undisclosed concentration can be a powerful part of a Texas fraud case. Placing nearly all client funds into one investment, without clearly disclosing that concentration and its risks, can support both the adviser-fraud theory and a broader deceit claim, especially when the adviser continues to represent that the portfolio is diversified or performing well. Prosecutors may point to the gap between what clients were told and what actually happened with their money. Where an adviser also uses new clients’ deposits to pay earlier clients’ supposed returns, Texas law can treat that circular flow of funds as further evidence of a scheme to defraud rather than legitimate investment activity, and prosecutors may add a misapplication-of-fiduciary-property charge under Section 32.45 of the Penal Code for funds an adviser held for clients but diverted.
How Serious Are These Charges in Frisco and Collin County Courts?
These offenses can range up to first-degree felonies in Texas depending on the amounts involved. Fraud in connection with investment-advisory services and the sale of securities is graded by the value obtained, and when the total climbs into the highest brackets, the exposure reaches first-degree felony territory, which carries the most serious punishment range under Texas law. Texas also lets the state combine losses from many clients that are part of one continuing course of conduct into a single, higher-grade charge, so a theft-by-deception count under Section 31.03 can be aggregated under Section 31.09 to reflect the full scope of the scheme. In Collin County and the wider Dallas-Fort Worth region, a case built on millions of dollars in investor losses and many victims is handled as a major financial-crime matter, and restitution to the affected investors is typically a central issue at every stage, from bond conditions through any resolution.
What Defenses Might Apply in a Texas Investment-Adviser Case?
Several defenses can matter in a Texas investment-adviser case. Because these statutes require proof of intent to deceive, a defense may focus on whether the adviser genuinely believed the investment would recover and disclosed the risks that were known at the time, rather than intending to defraud. The defense may also scrutinize exactly what was communicated to each client, whether account statements were accurate when issued, and whether losses reflected ordinary market risk rather than a scheme. On the financial counts, the defense may challenge how the state calculated losses, aggregated multiple clients, or attributed spending to fraud rather than to legitimate compensation. Each of these turns on the specific records, disclosures, and communications in the file.
How L&L Law Group Can Help
L & L Law Group, PLLC defends clients across Frisco, Collin County, and the Dallas-Fort Worth area in complex financial-crime and securities matters, including allegations against investment advisers, fund managers, and business owners. Our attorneys examine the disclosures, account records, and communications early, identify where the state’s intent and loss theories are weakest, and work to protect our clients’ rights at every stage. If you or your business is under investigation or facing charges involving investment-adviser fraud, securities fraud, or misuse of investor funds, contact L & L Law Group for a confidential consultation.
Is investment-adviser fraud always a felony in Texas? Not always. The grade depends on the dollar amount involved; smaller amounts can be lower-level offenses, but cases involving millions of dollars in investor losses are charged as high-level felonies.
Can an adviser be charged just for losing client money? No. Ordinary investment losses are not a crime. Criminal exposure arises where there is proof of intent to deceive, such as concealing losses or misreporting returns to clients.
Does ordering restitution end a Texas criminal case? No. Restitution is often ordered at sentencing and can be part of a resolution, but it does not by itself dismiss the charges; the state must still prove each element of the offense.
Reporting this commentary is based on:
New York Daily News — Travis Kelce among investors affected by a $31 million investment scheme
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