The Securities and Exchange Commission has filed a financial fraud case against Total Wealth Management Inc., an investment advisory firm based in Southern California. The regulator is accusing the firm of getting undisclosed kickbacks over investments recommended to clients. It is also alleging breach of fiduciary duty.
According to the SEC’s complaint, Total Wealth placed about 75% of 481 client accounts into Altus Funds, which is a family of proprietary funds. The investment advisory firm has a revenue-sharing deal that allows them to get kickbacks. The regulator says this was a conflict of interest because customers did not know about the agreement.
The Wall Street Journal reports that according to the SEC, Altus invested 92% of all its investments—$32 million—in funds that had revenue sharing deals with Total Wealth. The agency says that clients likely wouldn’t have put their money with Total Wealth if they had known that the majority of the Altus funds were paying the firm.
The Commission is accusing Total Wealth Management CEO Jacob Cooper, co-founder David Shoemaker, and chief compliance officer Nathan McNamee with setting up business entities to hide the undisclosed payments. While revenue sharing isn’t necessary illegal, they become a problem if they are concealed on purpose. Cooper is also accused of misleading investors about just how much due diligence it conducted on Altus Funds’ investments.
The SEC contends that Cooper and Total Wealth violated federal securities laws’ antifraud provisions, while Shoemaker and McNamee purportedly aided and abetted or violated the provisions. Other charges include custody rule and Form ADV disclosure rule violations. The Commission wants the allegedly ill-gotten gains given back, the imposition of a financial penalty, interest, and remedial relief.
Investment advisers have a duty to act in the best interests of a client. Failure to do that may result in losses for an investor and in some cases intentional gains for the adviser or his firm. If you think your investment losses are a result of your financial adviser breaching its duty to you, please contact our investment fraud law firm today.
Read the SEC Order (PDF)
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SEC Sanctions Three Investment Advisory Firms for Custody Rule Violations, Institutional Investor Securities Blog, October 30, 2013