A United States District Court judge has fined a former Los Angeles mutual fund manager $1 million in restitution, interest and penalties for misrepresenting the value of two worthless funds as $138 million, combined, to two brokerage firms in order to obtain margin loans.
Michael Carnicle, now of Las Vegas, Nev., must repay $443,323 plus interest for "ill-gotten gains," U.S. District Court of Utah judge Tena Campbell ruled Sept. 20 in a case brought by the Securities and Exchange Commission. The judge also fined Carnicle $443,323 in civil penalties. With interest, Carnicle owes the court more than $1 million.
In addition, the court fined Carnicle's co-conspirators, Randy Glad and Howard Ray, civil penalties of $20,000 each for assisting Carnicle in exchanging fund shares to acquire non-existent stock allegedly valued at $17.8 million in a shell, or assetless, company that Ray claimed to own, Judge Campbell ruled. The SEC also charged that Carnicle exchanged fund shares for worthless pre-World War II German bonds that had a face value of $28 million. The judge did not rule on this point.
Carnicle, Glad and Ray made these exchanges to make it appear as if the two funds, Public Funding Portfolios and American Vision Funds, were worth $40 million and $98 million, respectively, and in order to fraudulently obtain $443,323 in margin loans from Kidder Peabody of New York and Covey & Co. of Salt Lake City, Utah, said Karen Matteson, an attorney with the SEC who led the investigation.
Although Carnicle swindled these two brokerage firms, both of which are now defunct, he never offered shares in the funds to the public, Matteson said. Instead, Carnicle inflated the value of the two funds in hopes of attracting large amounts of building union pension money to the funds through a connection that his father, Francis Carnicle, had with the union, Matteson said.
Carnicle registered his two funds in 1991 but the SEC closed them in 1992 under court order after Verland Thayne Whipple II, who Carnicle had named as the fund's president in SEC filings, informed the commission he had no association with the funds and that Carnicle, in fact, was in charge, Matteson said.
It then took another three years for the SEC to file its case against Carnicle because "this was a very complicated fraudulent scheme that showed a great deal of planning and a high level of intent," said Matteson. "In addition, Carnicle was uncooperative in providing discovery papers," she said.
Besides failing to disclose his own identity as manager of the two funds in registration statements, Carnicle falsely cited individuals and entities as the funds' general counsel, administrator and custodian, the judge ruled. Carnicle deliberately did this to distance himself from the funds "to orchestrate the fraudulent scheme," the court ruled.
The registration statements for Carnicle's two funds also falsely stated that exchange transactions "would only be conducted under limited circumstances," Judge Campbell ruled. The registration statements also falsely said that only ten percent of the funds' assets would be invested in illiquid securities, the judge ruled.
Carnicle further stole $16,000 of $20,000 of the fund's assets purportedly paid to an attorney for legal services, the judge ruled.
Carnicle could not be reached for comment since he is unlisted in the Las Vegas, Nev. phone directory. James Holbrook, an attorney with Callister Nebeker & McCullough of Salt Lake City, Utah, who is listed in the court ruling as Carnicle's attorney, said he represented Carnicle years ago and had no knowledge of the current status of the case.
The SEC does not know where Glad or Ray are but suspects they may be in Europe, Matteson said.