More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
The Securities and Exchange Commission Wednesday announced fraud charges and an asset freeze against a Utah-based retirement plan administrator who the agency says squandered more than $22 million of investor funds on high-risk investments.
The SEC alleges that American Pension Services Inc. (APS) and its founder, president and CEO Curtis L. DeYoung, defrauded investors in self-directed individual retirement accounts (IRAs), causing them to lose millions of dollars of savings.
DeYoung, the SEC says, hid the losses by issuing inflated account statements, allowing him to continue collecting fees and further victimizing his customers.
“This misconduct jeopardized retirement security for thousands of APS customers,” said Karen L. Martinez, director of the SEC’s Salt Lake Regional Office, in a statement.
According to the SEC’s complaint, unsealed Tuesday in federal court in Salt Lake City, DeYoung’s scheme dates back to at least 2005 and targeted customers with retirement accounts holding nontraditional assets typically not available through traditional 401(k) retirement plans or other IRA custodians.
Although APS has no authority to direct customer trades, DeYoung allegedly used forged letters and signatures to invest on behalf of customers, including in promissory notes issued by a friend whose businesses never turned a profit. “DeYoung continued to recommend that APS customers invest in the notes, and he sent customer funds to the friend until at least April 2013 without disclosing to investors that the friend had defaulted on the notes in 2010 and DeYoung had forgiven the debt,” the complaint says.
The SEC further alleges that investments in other bankrupt ventures, including an office building in Wichita, Kansas, caused APS customers to lose more money. “APS concealed those losses and issued account statements that inflated the value of customer holdings, allowing APS to levy fees based on the full value of the holdings even when they were worthless,” the SEC states.
According to the SEC’s complaint, when DeYoung was questioned by the SEC about a $22 million gap between actual holdings and those showing on account statements, he invoked his Fifth Amendment privilege against self-incrimination and refused to answer.
Judge Robert J. Shelby granted the SEC’s request for a temporary restraining order to freeze the assets of APS and DeYoung. The court appointed Diane Thompson of Ballard Spahr LLP as the receiver in the case to recover investor assets.