Articles Posted in Investment Advisers

Kristofor R. Behn and his Fieldstone Financial Management are now facing US Securities and Exchange Commission (SEC) charges accusing them of defrauding retail investors. Behn and the firm, which was a registered investment adviser until March, recommended that their clients invest in Aequitas Management LLC-issued securities. In 2016, Aequitas and four of its affiliates were accused of defrauding over 1500 investors of around $350M–although that figure could be as high as around $600M.

The Commission contends that between 2014 and early 2016, Behn and Fieldstone advised about 40 individuals to invest over $7M in Aequitas securities, while failing to disclose that the company had given Fieldstone a $2M credit line and a $1.5M loan. Both were reasons for him and his firm to recommend the investments to clients seeing as, per the terms:

  • If $25M of the assets of Fieldstone’s clients went into Aequitas securities, then Behn could pay back the loan by “converting the debt into an equity interest” in Fieldstone, with the interest belonging to Aequitas.

A Financial Industry Regulatory Authority (FINRA) arbitration panel has awarded 23 investors $3M in their claim against Spire Securities, its CEO David Lloyd Blisk, and CCO Suzanne Marie McKeown. The broker-dealer and its executives were accused of inadequately supervising former broker Patrick Evans Churchville, whom the investors contend fraudulently sold them investments that caused them to lose money in a $21M Ponzi scam.

Churchville sold the investments through ClearPath Wealth Management, a registered investment adviser that he operated outside of Spire Securities. Still, the claimants contended that the broker-dealer should have prevented Churchville from causing them financial harm while he was a Spire Securities broker and could have done so had they properly overseen him.

Churchville pleaded guilty in 2016 to criminal charges accusing him of operating a $21M Ponzi scam. In 2017, he was sentenced to seven years in prison for tax evasion and wire fraud.

Unregistered investment advisers (IAs) David Wagner and Mark Lawrence, Downing Investment Partners, Downing Partners, and Downing Digital Healthcare Group are now facing US Securities and Exchange Commission (SEC) charges accusing them of involvement in an $8M scam that allegedly defrauded dozens of healthcare fund investors. Wagner and Downing are also facing parallel criminal charges.

The regulator contends that between 5/2014 and 1/2017, Wagner, Lawrence, and the companies they headed sold healthcare services and technology-related investment opportunities while defrauding 30 investors, many of them “purported” employees at two of the defendant companies, as well as at Downing Health Technologies, Inc., and Cliniflow Technologies. According to the SEC’s complaint, the two unregistered investment advisers and their companies claimed to acquire, oversee, and resell companies that offered technologies and services for the investment portfolios of the healthcare funds at issue.

To bring in new investors, the two unregistered IA’s allegedly would inflate how much was available in cash reserves at the funds, including at Downing Digital Healthcare Group and Downing Investment Partners, as well as the revenue from the portfolio companies of the funds. Wagner is also accused of secretly negotiating a deal that obligated Downing Digital Healthcare Group to pay him and an entity that he operated certain management fees. This allegedly resulted in the defendants misusing at least $540K of the $1.5M that was invested in Downing Digital Healthcare Group to go toward these fees.

A federal jury has found Leon Vaccarelli guilty of 21 counts of fraud and money laundering. Vaccarelli, a former registered The Investment Center broker, an ex-IC Advisory Services-associated investment adviser, and the owner of LWLVACC who conducted business through Lux Financial Services, is accused of defrauding investors, including elderly clients, of $1.5M.

Vaccarelli gave investment advice and sold securities and investments to families in Connecticut. According to Justice.gov, from about 2011 and 2017, the ex-former investment adviser and broker defrauded about 15 victims. He falsely represented that their money would be invested in IRA rollover accounts, certificates of deposit, money market accounts, and other investments that would earn interest.

Instead, Vaccarelli put investors’ money into his own business and personal accounts, commingling their funds with his, and used the money to help cover his own mortgage and other personal expenses, as well as certain business costs. Some customers’ monies were used to pay “interest” to other investors whom he was also defrauding.


Investment Advisor Allegedly Overcharged Clients $367K in Advisory Fees

The US Securities and Exchange Commission (SEC) has filed investor fraud charges against investment adviser Stephen Brandon Anderson, accusing him of defrauding clients and overcharging them at least $367K in advisory fees. Anderson ran River Source Wealth Management, LLC. The formerly registered investment advisory firm (RIA) is no longer in operation.

However, while in business, said the SEC, the RIA’s main income source was customer advisory fees. The fees were determined according to the assets under management of each customer.

Just weeks after Direct Lending Investments (DLI) announced to private fund investors that it was suspending redemptions and withdrawals after one borrower defaulted on a $191.3M loan, the  US Securities and Exchange Commission (SEC) filed civil charges against the registered investment adviser (RIA). The regulator contends that Direct Lending engaged in a multi-year, $11M fraud that allegedly involved overcharging clients for both performance and management fees related to private funds, as well as for inflating fund returns.

The RIA advises private funds, which includes a private fund structure made up of the feeder funds Direct Lending Income Feeder Fund, Ltd. and the Direct Lending Income Fund, LP. The funds invest in different lending platforms, including the online small business lender QuarterSpot.

The SEC, in its complaint, is accusing Direct Lending owner Brendan Ross of making a deal that allowed QuarterSpot to “falsify borrower payment information” for its loans and “falsely report” to the RIA that borrowers had submitted hundreds of monthly payments when this was not true at all. The regulator contends that a significant number of these loans should have been given a zero valuation rather than their “full value.” Because of this, the SEC alleges, between 2014 and 2017 the valuation of QuarterSpot’s position was “cumulatively overstated” by about $53M, which caused the Funds’ performance to be misrepresented by about 3% yearly. Meantime, Direct Lending allegedly collected about $11M in excess fees from the Funds.

Raymond Montoya, a former Boston hedge fund manager, is sentenced to 14 years in prison. According to the US Attorney’s Office for the District of Massachusetts, Montoya, 70, pleaded guilty to multiple counts of wire fraud, mail fraud, and charging an unlawful monetary transaction after the government accused him of deceiving investors of his RMA Strategy Opportunity Fund and costing them more than $30M.

The ex-hedge fund manager and owner of Research Magnate Advisors admitted to stealing money to support his luxury lifestyle. Some of his victims were his own friends and relatives.

Investors in the RMA Strategy Opportunity Fund were under the impression that the fund held more money than it actually did. Meanwhile, Montoya falsely touted possession of proprietary software that could help make wise investment choices involving bonds and stocks and would supposedly lead to returns. The investor fraud went on from at least 2009 to about mid-2017, which is when Massachusetts Secretary of the Commonwealth William Galvin brought a civil fraud case against Montoya.

Dennis Gibb, an investment adviser and the owner/president of Sweetwater Investments Inc., has pleaded guilty to falsification of records and wire fraud. Gibb has also settled parallel civil charges brought by the US Securities and Exchange Commission (SEC) in which part of that deal involves the liquidation of his Sweetwater Income Flood LP Fund.

Gibb set up the private fund in 2008. The year before, he started to solicit prospective investors who were looking for consistent retirement money. The SEC said that between those two years, at least 15 investors put approximately $7.3M in the Sweetwater Income Flood fund.

According to the US Attorney’s Office for the Western District of Washington, Gibb defrauded about 15 investors of over $3M. He touted a sophisticated investment approach that in part involved investing in government bonds with the intent to generate “stable returns.” Meantime, even as Gibb stole investors’ money for his own use, he was telling them that the private fund had $7.8M when, in actuality, it was holding less than $2M.

Carol Ann Pederson, an unregistered investment advisor and an ex-CPA, is facing charges accusing her of defrauding more than two dozen investors. The US Securities and Exchange Commission claims that Pederson:

  • Raised at least $29M from investors.
  • Made false promises that their money would go into “federally guaranteed securities.”

Massachusetts Secretary of the Commonwealth William F. Galvin has filed civil charges accusing Oakdale Wealth Management financial advisors Michael O’Keefe and James Daly of using over $11M of client assets to make risky bets on oil and gas investments. The state regulator accused them of employing a “one-size-fits-all” approach when managing investors’ money. Oakdale Wealth Management is a registered investment advisor (RIA) that the two men founded in 2006.

According to Galvin’s complaint, Daly and O’Keefe gambled away clients’ money in the oil and gas market. The two investment advisors are accused of spending more than $11M of investors’ funds to make 2000 energy-related investment purchases, including Master Limited Partnerships (MLPs). Their victims included a number of senior citizens who were saving money to retire, blue-collar workers, a charitable organization, and a widow.

The Massachusetts regulator contends that even though the risk tolerance levels, investment goals, and financial situations of Oakdale’s clients varied, the two financial advisers made the decision to place almost all of them in high-risk, publicly traded investments related to energy, including oil and gas investments. This, even as the firm’s written policies and procedures articulated that investment decisions would be specifically tailored according to each client’s goals and the degree of risk they could handle.

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