New York-based investment advisor deVere USA has agreed to pay an $8 million civil penalty related to its failure to disclose conflicts of interest to its retail clients, the Securities and Exchange Commission said.
The settlement will result in the establishment of a Fair Fund for distribution of the penalty to affected clients. The SEC also announced the filing of a litigated action against two deVere USA investment advisor representatives, one of whom was the CEO of the firm.
According to the SEC’s order, deVere USA failed to disclose agreements with overseas product and service providers that resulted in compensation being paid to deVere USA advisors and an overseas affiliate.
The SEC order finds that the undisclosed compensation — including an amount equivalent to 7% of the pension transfer value — created an incentive for deVere USA to recommend a pension transfer and particular product or service providers that were obligated to make payments. The order also finds that deVere USA made materially misleading statements concerning tax treatment and available investment options.
The SEC separately filed charges against the former deVere USA CEO, Benjamin Alderson, and a former manager, Bradley Hamilton. The SEC’s complaint alleges that Alderson and Hamilton misled clients and prospective clients about the benefits of pension transfers while concealing material conflicts of interest, including the substantial compensation that Alderson and Hamilton personally stood to receive.
“Investment advisors have an obligation to disclose direct and indirect financial incentives,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “DeVere USA brushed aside this duty while advising retail investors about their retirement assets, and today’s settlement will result in a Fair Fund distribution to deVere USA’s retail clients who were deprived of important information.”
Without admitting or denying the SEC’s findings, deVere USA consented to the SEC’s order, which imposes remedies that include an $8 million penalty and engaging an independent compliance consultant. The SEC’s complaint against Alderson and Hamilton alleges that they violated the Investment Advisers Act and seeks an injunction, disgorgement plus interest, and civil money penalties.
SEC Charges ‘Whale Whisperer’ Musician for Defrauding Investors in Fraudulent ‘Soundwave’ Investment Offerings
The Securities and Exchange Commission announced fraud charges against musician Paul Gilman and his companies, alleging that nearly all of the money they raised in securities offerings went to fund Gilman’s lavish personal spending in Las Vegas and California.
The SEC’s complaint charges Gilman used his companies — Oil Migration Group LLC, WaveTech29 LLC and GilmanSound LLC — to fraudulently solicit retail investors, including a nurse, a minister and a businessman.
Gilman, a self-dubbed “Whale Whisperer” who produced and starred in a documentary of his encounters with whales, claimed to be developing a revolutionary “soundwave” technology that would transform the oil and gas industry.
According to the complaint, Gilman told OMG and Wavetech investors that he would use their funds to test, validate, further develop and license the soundwave technology for use in oil and gas industry applications, and he promised the investors substantial profits.
Instead, Gilman is alleged to have used substantially all of the investor funds for his personal benefit, including to pay for luxury Las Vegas hotels, restaurants, designer clothing and large cash withdrawals at casino ATMs.
Gilman also allegedly defrauded investors in GilmanSound, a company he claimed would revolutionize sound systems in sport stadiums. While GilmanSound provided some real services to major-league baseball stadiums, the SEC’s complaint alleges that a substantial amount of the GilmanSound investor funds also were misused for Gilman’s personal expenses.
The SEC seeks permanent injunctions, disgorgement and civil penalties.
SEC Charges Equipment Leasing Company, Founder in $80M Promissory Note Fraud
The SEC charged an equipment leasing company and its founder with defrauding investors in connection with sales of more than $80 million in promissory notes.
According to the SEC’s complaint, between 2014 and 2017, Essex Capital Corp. and its founder, Ralph Iannelli, made a series of false and misleading statements and illusory personal guarantees to RIAs to induce them to invest millions of dollars of their clients’ money in Essex’s failing equipment leasing business.
The SEC alleges that Essex and Iannelli provided one investment advisor with fake financial statements that overstated Essex’s assets by more than $20 million and falsely told another investment advisor that Essex would assign equipment leases to its clients when the same leases had already been pledged as collateral for bank loans.
The SEC’s complaint further alleges that as Essex’s finances deteriorated, the company resorted to frequent Ponzi-like payments, paying interest and principal to existing Essex investors with funds raised from newer investors.
At the same time, Iannelli allegedly paid himself millions of dollars in bonuses and siphoned millions of dollars out of Essex through interest-free loans with no maturity date. According to the SEC, Iannelli personally owes the company more than $6.4 million.
The SEC’s complaint seeks disgorgement of allegedly ill-gotten gains along with interest, monetary penalties, and permanent injunctions against Iannelli and Essex. The SEC has also requested emergency relief against the defendants, including a preliminary injunction, an asset freeze, and the appointment of a receiver over Essex.
Defendant in SEC Enforcement Action Pleads Guilty to Lying to the SEC
A former chairman of a Massachusetts-based medical diagnostics company previously called Endeavor Power Corp., whom the SEC has charged with a scheme to defraud potential investors in Endeavor’s publicly traded stock, has pleaded guilty in a federal court in Boston, Massachusetts, to making false statements to the SEC.
Edward Withrow III pleaded guilty to one count of making false statements in connection with his sworn investigative testimony to the SEC in August 2013 relating to questions about who owned approximately 40 million unrestricted shares of Endeavor’s stock, and whether Withrow ever tried to determine who owned those shares. He is scheduled to be sentenced on Sept. 27.