Steven Adler, 63, of Tampa, Fla., the former president of Vector Index Advisors, and manager of the ASM Index 30 Fund, has been permanently kicked out of the fund industry and is facing five years in prison for allegedly misappropriating $1.9 million of investors' money.
Adler is facing a Federal indictment on 20 counts of mail and wire fraud. In addition, the SEC has permanently barred Adler from working with any broker/dealer or investment advisory firm.
The indictment and the SEC's sanction were handed down last month after a federal investigation revealed that between October 1994 and September 1998 Adler misappropriated more than $1.9 million of investors' money.
Adler had promised to invest the money in shares of the firm's sole fund, a proprietary index fund which tracked the Dow Jones Industrial Average. The fund debuted in 1991.
On Nov. 6, a federal grand jury in Tampa, Fla., indicted Adler on 13 counts of mail fraud and seven counts of wire fraud. The indictment, announced by the U.S. Attorney's Office for the Middle District of Florida, charged that Adler had solicited money from would-be investors in the fund. In some cases Adler diverted those assets to pay fund company and other expenses, the indictment alleged.
In other instances, Adler invested the money but then illegally instructed the fund's transfer agent to liquidate investor assets and wire the proceeds to a Vector-owned and Adler-controlled bank account, according to the indictment. The indictment also alleges that Adler mailed false and fictitious monthly investment statements to these investors.
Each count of the indictment carries a maximum penalty of five years of imprisonment and a $250,000 fine.
The federal indictment against Adler, which includes virtually identical charges to the allegations made by the SEC last year, was prompted by the SEC's investigation.
The SEC investigation settled Nov. 16. Adler agreed to the SEC settlement without admitting or denying the charges.
The SEC also mandated that Adler return all of the investors' assets plus interest, but waived the payment because Adler had demonstrated an inability to pay and Vector filed for bankruptcy in 1999, the SEC said.
But defrauded investors may get their money back. At least two civil suits have been filed against Vector, Adler and Orbitex Management of New York, the fund's current advisor.
In 1998, the ASM 30 Index Fund's board of directors terminated the fund's advisory contract and appointed Orbitex as the fund's new advisor. The fund later changed its name and was added to the Orbitex fund complex.
That suit is still pending, said Robert Hearn, an attorney representing one of the groups of investors. "The plaintiffs are still actively pursuing this case," Hearn said.
An executive at Orbitex did not return a call seeking comment.
A History of Shady Dealings
The SEC said its decision to permanently bar Steven Adler from the fund industry was the result of a career path checkered with shady dealings.
In 1996, the SEC settled an administrative proceeding against both Adler and Vector Index Advisors, charging that from October 1993 to October 1994, Vector had illegally borrowed $420,775 from the ASM Index 30 Fund. According to the SEC, Vector failed to reimburse the fund on a timely basis for those expenses which Vector had contractually agreed to pay as the fund's advisor. The amount was eventually repaid to the fund on Oct. 24, 1994, the SEC said.
For that original offense, the SEC handed down several sanctions and mandated that Vector hire and pay for a consultant to recommend policies, procedures and controls to prevent a recurrence of violations. The SEC also fined the firm $5,000.
A call to Adler's home was not returned.