SEC: Ex-Wells Fargo advisor stole $1M from elderly clients, including Alzheimer's sufferers
Over the course of his 35-year career, most recently with two broker-dealers, Wells Fargo FiNet and Stifel, John Gregory Schmidt forged "close personal relationships" with his clients.
After about 10 of their accounts showed shortfalls, the former CFP filled the deficits by stealing more than $1.16 million from some seven of his older and wealthier clients, including some suffering from Alzheimer's.
The scheme lasted more than 14 years, covering three years at Stifel and carrying over to his subsequent 11 years with Wells Fargo’s independent broker-dealer.
That's according to a new complaint filed against Schmidt by the SEC in the Southern District of Ohio and to BrokerCheck.
"Schmidt betrayed his customers’ trust by perpetrating a classic fraudulent scheme: He robbed Peter to pay Paul," SEC says in the legal complaint.
In March, FINRA barred Schmidt from association with any of its members.
Schmidt, 67, who lives in Bellbrook, Ohio and worked out of an office in nearby Dayton, did not respond to attempts to reach him at home.
“It starts out small,” the advisor told his compliance officer, authorities say. “You think you are going to pay it back.”February 24
A 75-year-old widowed retiree allegedly lost nearly half of her $3 million investment in the scheme.November 15
The wire fraud charge came nearly four years after the CFP Board revoked his certification.November 17
During the scheme, as some of his ten clients took withdrawals to live on, Schmidt chose not to tell them the truth about their dwindling assets, the SEC says. Instead, he allegedly sent them fake account statements that "grossly overstated" their balances by up to 50 to 75 times and assured them that they could continue making withdrawals without jeopardizing their principal.
Schmidt's clients-cum-victims were "particularly vulnerable," the commission says.
Most were elderly retirees with little financial expertise, according to the complaint. Some are described as suffering from Alzheimer's disease or other kinds of dementia and at least five apparently passed away during the course of the fraud.
“In one instance, Schmidt continued to defraud a customer after his death,” the SEC says in its legal complaint.
Schmidt, who structured his business on commission-income and took no fees for managing assets, generated $230,000 for himself in commissions for sales of securities in the scheme from 2013 to last year, according to the commission.
To steal money from his wealthier seven clients, Schmidt made unauthorized sales of their variable annuities to generate funds, the complaint says. He also allegedly used fraudulent letters of authorization to sell securities and transfer funds.
For example, the commission accuses Schmidt of selling securities in three clients' accounts using letters they had purportedly signed to pay premiums owed on designated life insurance policies. However, those customers didn't own any of the policies, the SEC says.
"Unbeknownst to those customers, the policies identified in the [letters] were owned by" the clients to whom Schmidt was transferring money – "people that these [victims] did not even know," the complaint alleges.
The victims "rarely made withdrawals for themselves, making it less likely that they would discover Schmidt’s fraud by overdrawing their accounts," according to the SEC.
Schmidt's scheme fell apart last summer following an investigation begun by the Ohio Department of Insurance, according to the SEC. The department declined comment.
Around that time, an insurer informed Schmidt it could not issue a check to a third party, blocking his alleged plan to transfer funds from one client to another.
In October 2017, Wells Fargo fired Schmidt after learning about “allegations of unauthorized money movement between clients,” according to FINRA BrokerCheck records.
Wells Fargo has settled one client complaint regarding alleged stolen funds for $1.5 million and that of a second client complaint regarding alleged “misrepresentations regarding the value of the customer's investments” for $200,000, according to BrokerCheck records. Neither client is named.
"In cases such as this we are going to make it right with clients," says Shea Leordeanu, director of corporate communications for Wells Fargo Advisors.
A spokesman for Stifel did not immediately respond to a request for comment.
The CFP Board website, which says Schmidt is no longer certified, does not list any disciplinary history for him. The board did not immediately respond to questions about Schmidt.
In an unrelated case in 2007, shortly after Schmidt left Stifel, Schmidt and the regional BD and Wells Fargo collectively paid $80,000 to settle a $500,000 claim from clients who accused him breach of fiduciary duty, negligence and malpractice, according to BrokerCheck. Wells Fargo spokeswoman Leordeanu did not respond when asked why Wells Fargo decided to retain him.
In its case, the SEC is seeking a judgment ordering Schmidt "to disgorge his ill-gotten gains with prejudgment interest, and to pay civil penalties."