5 Financial Advisors Caught in the SEC's Crosshairs
The Securities and Exchange Commission is stepping up its investigation and enforcement efforts to crack down on unscrupulous financial advisors who are responsible for bilking investors out of hundreds of millions of dollars every year.
Heres an interactive slide show detailing five advisors who have already found themselves in the SECs crosshairs this year.
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When investors trusted their money to Steven L. Hamilton, the SEC alleges, they thought they were investing in solid assets like real estate, but in reality were enmeshed in a Ponzi scheme.
On Feb. 21, the SEC charged Steven L. Hamilton and three of his companies Verde Retirement, Verde FX Nevada and Covenant Capital Partners with securities fraud for allegedly defrauding at least 23 investors out of more than $1.6 million in a series of Ponzi schemes.
The SEC alleges from 2007 through February 2011, Hamilton solicited investors through the Internet and via direct solicitation. The complaint claims Hamilton told Covenant Capital investors they were investing in real estate loans secured by deeds of trust, told Verde Retirement investors they were investing in either real estate loans secured by deeds of trust, certificates of deposit, and told Verde FX investors they were pooling their money to invest in the construction of a new FedEx distribution facility in Las Vegas.
Hamilton did not respond to requests for comment on the SEC allegations.
According to SEC investigators, Hamilton never placed any investor money in real estate loans secured by deeds of trust, certificates of deposit or a FedEx facility. Instead, Hamilton used the $1.6 million he raised to pay his personal living expenses and return capital to investors.
The SEC is seeking permanent injunctions against Verde Retirement, Verde FX, Covenant Capital, and Steven Hamilton, and disgorgement, prejudgment interest, and a yet-to-be-determined civil penalty against Hamilton.
In the case of Brenda A. Eschbach of Tustin, Calif., investors wrote checks directly to their advisor, but instead of being invested, the funds went to pay her personal expenses, the SEC alleges in its complaint.
On Feb. 14, the SEC filed a civil injunctive action in the U.S. District Court for the Central District of California charging Eschbach with securities fraud, investment advisory fraud and acting as an unregistered broker-dealer. In its complaint, the SEC alleged that Eschbach misappropriated over $3 million in investment advisory client funds from 2003 through 2009.
The complaint alleges that Eschbach began to misappropriate client funds while operating a franchise of a large investment advisor and broker-dealer and that the theft of client funds continued after Eschbach founded Aventine Investment Services, Inc., a now-defunct California corporation.
An attorney for Eschbach did not respond to requests for comment.
Investigators said Eschbach did not make investments as directed by her clients, but instead used their funds to pay for, among other things, living expenses, business expenses, credit card payments, Mercedes lease payments, private school tuition for her daughter and trips to Las Vegas and Atlanta. The complaint alleges that Eschbach concealed her misappropriations by issuing and mailing false and misleading account statements to those clients whom she had defrauded.
Without denying the SECs allegations, Eschbach has consented to entry of a proposed final judgment that permanently enjoins her from violating Section 17(a) of the Securities Act, Sections 10(b) and 15(a) of the Exchange Act, Exchange Act Rule 10b-5, and Sections 206(1) and 206(2) of the Advisers Act; and ordering the disgorgement of $2,561,873.
In the related federal prosecution, Eschbach entered a plea of guilty on Sept. 30, 2011 to one count of mail fraud and one count of money laundering. She was sentenced on Feb. 17 to 41 months in prison and billed for $2.5 million in restitution by a judge in US District Court for California's Central District.
Christopher T. Vulliez allegedly misappropriated nearly three quarters of a million dollars in funds from investors who knew and trusted him, according to the SEC.
Judge Richard M. Berman of the U.S. District Court for the Southern District of New York ordered Christopher Vulliez of Amphor Advisors to pay $820,500 and imposed a permanent injunction against future violations of the antifraud provisions of the federal securities laws.
The judgment came after the SEC alleged that between March 2010 and January 2011, Vulliez misappropriated at least $700,000 from his closest family and friends. According to the complaint, Vulliez made false and misleading statements to his clients that he would invest their funds in a biotech company. Instead, he and Amphor misappropriated the funds.
Vulliez consented to the entry of the final judgment.
In a related criminal action, on Dec. 7, 2011, Vulliez pled guilty to one count of scheme to defraud in the first degree and 10 counts of securities fraud.
Pursuant to a plea agreement, Vulliez will receive a sentence of six months incarceration followed by five years of probation and be ordered to pay restitution in the amount of $2,176,755.48.
Ruth Yang, an attorney for Vulliez, said that her client has "moved sun moon and sky to make restitution" to the victims, through liquidation of personal and family assets among other efforts, "and he is nearing the finish line on that."
Investment advisor Carlo G. Chiase and his wife, Micol Chiase, allegedly cheated clients out of multiple millions, according to the SEC.
On Jan. 24, the SEC announced it had obtained final judgments in its civil enforcement against the Chiaeses, for their roles in stealing more than $2.4 million from six advisory clients.
SEC investigators said Carlo Chiaese repeatedly made false and misleading statements to his clients regarding the clients' investments, including creating and providing to clients fictitious, self-generated account statements that misrepresented the value of their investments and falsely stated that their investments were safely held at a broker-dealer.
In reality, Chiaese used much of his clients' funds to support his lavish lifestyle, including: mortgage payments on a million-dollar home; approximately $32,000 on landscaping; approximately $70,000 on multiple country clubs; approximately $12,000 on his child's private school tuition; approximately $4,000 at a New York City hotel on New Year's Eve 2008; thousands of dollars on expensive cars; tens of thousands of dollars per month in living expenses; and numerous cash withdrawals.
Micol Chiaese, an officer of CGC, benefited from this fraud by directly receiving at least $289,000 of clients funds, according to the SEC.
On March 31, 2011, Carlo Chiaese pled guilty to one count of fraud in before the United States District Court for the District of New Jersey. On Aug. 18, 2011, the District Court entered a criminal judgment against Chiaese ordering 58 months imprisonment and payment of $2,464,518 in restitution to be distributed to the victims. On Dec. 12, 2011, the court entered a final judgment against relief defendant Micol Chiaese in the civil action, ordering that she pay disgorgement of her ill-gotten gains of $304,860.34, including interest.
An attorney for Chiase did not respond to a request for comment.
Robert Glenn Bard portrayed himself as a deeply religious man who, according to SEC investigators, preyed on victims in this small rural community by lying to them repeatedly about the nature of the investments he was making on their behalf while simultaneously squandering their fortunes in risky investments.
On Feb. 2, Judge William C. Caldwell of the U.S. District Court for the Middle District of Pennsylvania imposed a $2.5 million civil penalty against Bard, finding that the egregiousness of the defendants behavior, the recurrent nature of the conduct, the lack of cooperation with authorities, the defendants degree of scienter and the risk of loss created by the defendants actions dating back to at least 2005 justified the size of the judgment.
Attorneys for Bard did not respond to a request for comment.
In its original filing back in July 2009, the SEC alleged that Bard promised high yields and safety of principal, telling clients he put their money into safe investments such as bonds, CDs and money market funds. In reality, the SEC said it discovered he had squandered hundreds of thousands or more of client funds by making risky (and losing) investments in penny stocks and other securities and borrowing on margin.
SEC investigators said Bard created false statements and forged client authorization forms to transfer funds between accounts to conceal the dissipation of assets. At the time the SEC filed the original lawsuit, Vision Specialist had at least $4.4 million in client assets under management in more than 150 accounts.
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