Once High-Flying Advisor Faces SEC Lawsuit

Wealth manager Peter J. Eichler Jr., of Pacific Palisades, Calif., once had more than $10 billion in assets under management. Following his RIA’s bankruptcy filing in November, however, the SEC has filed a lawsuit against Eichler and Aletheia Research and Management for alleged securities fraud and for allegedly violating fiduciary duties to clients and to the funds Aletheia managed. (The bankruptcy filing was posted in its entirety on Scribd by the New York Times' DealBook site.)

Eichler and funds run by his Santa Monica, Calif., firm reaped more than $4 million in fraudulent profits (including $2 million for Eichler himself) by using a “cherry-picking” options scheme, the SEC complaint alleges. The scheme allegedly allocated thousands of options trades more than an hour after their execution, sending winning ones to Eichler’s personal account and to favored funds, and allocating losing trades to disfavored funds, the SEC claims.

His alleged victims include a client list of high-net-worth individuals, foundations, endowments, pension funds and institutional investors. The complaint was filed in Federal District Court in Los Angeles; the agency seeks a permanent injunction against Eichler and Aletheia, to prevent future violations, as well as disgorgement of any ill-gotten gains.

A woman who answered the phone at Eichler’s office said he would have no comment. Calls to his bankruptcy attorney, David L. Davidoff, and to the SEC were not immediately returned.

Eichler is founder, chairman, CEO and CIO of Aletheia – named after a Greek word that translates as “truth" or "disclosure.”  But both Eichler and the firm have run into a raft of legal troubles.

A suit filed in 2010 by Aletheia cofounder Roger B. Peikin, accused Eichler of using his firm as his personal piggy bank, calling Eichler a “not-so-benevolent dictator” whose story is a “tale of unchecked greed and hubris.” Peikin's lawsuit(also published on Scribd by DealBook)  describes Eichler's lifestyle as lavish, citing a "vast array of perks" that include a private driver and luxury vacations, and alleged iron rule over his own firm. A year earlier, one of its minority stakeholders also sued the firm.

And on October 1, 2012, the state of California suspended the firm’s corporate status because of nonpayment of more than $2 million in late taxes, according to the SEC complaint. However, Aletheia neglected to inform clients of its precarious financial situation until November 9, the eve of its bankruptcy filing, the SEC says, creating a material breach of fiduciary duty and federal securities law. Federal law requires advisors to “fully and promptly” disclose any financial situation that could impair its ability to meet contractual commitments to clients.

Aletheia’s website still boasts  of its founder’s work history and lineage, noting that Eichler is the grandson of Henri de La Chapelle, one of the original partners of Paine Webber. Another grandfather founded a company that became one of the largest regional securities firms in the country, Bateman Eichler, Hill Richards, the website says. Eichler’s father, Peter J. Eichler Sr., presided over that firm's expansion. While the younger Eichler was at Bear Stearns, the website says, he created a fund with a name that now sounds unfortunate in light of the SEC’s accusations: the Bear Stearns Insiders Fund.

The SEC filing goes into meticulous detail about the alleged cherry-picking scheme. In one instance, for example, the complaint says that “on February I, 2010, from 10:20 a.m. to 10:21 a.m., Eichler bought 150 Amazon options … at a price of $11.45 per share (each option represents the right to buy or sell 100 shares). By 11:47 a.m., the option price had risen to $15.20 per share. At that time, the … allocation account sold 150 Amazon options at $15.20 per share. Then, at 11:49 -- only after the Amazon position was profitably closed out and with this perfect information in hand -- Eichler allocated every one of the Amazon options trades to his personal trading account. Because of this late allocation, Eichler personally profited [by] approximately $56,212.43.”