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Regulation and Compliance > Federal Regulation > SEC

SEC Charges San Diego Firm, Execs in Kickback Scheme

By Melanie Waddell

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The Securities and Exchange Commission announced charges Tuesday against a San Diego-based investment advisory firm, its chief executive officer, chief compliance officer and another employee for misleading investors and breaching their fiduciary duties to clients.

The SEC’s Enforcement Division alleges that Total Wealth Management and its owner and CEO, Jacob Cooper, entered into undisclosed revenue sharing agreements through which they paid themselves kickbacks or so-called “revenue sharing fees.”

The firm failed to disclose to clients the conflicts of interest created by these agreements as they recommended the underlying investments to clients and investors in the Altus family of funds, the SEC says.

Total Wealth and Cooper also materially misrepresented the extent of the due diligence conducted on the investments they recommended.

Total Wealth’s CCO, Nathan McNamee, and investment advisor representative Douglas Shoemaker also breached their fiduciary duties and defrauded clients “by failing to disclose conflicts of interest and concealing the kickbacks they received from the investments they recommended,” the SEC states.

Michele Wein Layne, director of the SEC’s Los Angeles Regional Office, said in a statement announcing the charges that “investment advisors owe a fiduciary duty of utmost good faith and full and fair disclosure to their clients. Total Wealth violated that duty with its pervasive practice of placing clients in funds holding risky investments while concealing the revenue sharing fees they paid themselves.”

In the order instituting administrative proceedings, the SEC’s Enforcement Division alleges that Total Wealth and Cooper willfully violated the antifraud provisions of the federal securities laws, and McNamee and Shoemaker violated or aided and abetted violations of the antifraud provisions.

They also are charged with violations of Form ADV disclosure rules and the custody rule. The SEC’s order seeks return of allegedly ill-gotten gains plus interest, financial penalties, an accounting and remedial relief.

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Check out SEC Enforcement: Traders Used Wives’ Information to Make Insider Trades on ThinkAdvisor.

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