Top Executives Foster Flagrant Fraud Practices
It goes without saying that there is a lot of money to be made in the investment industry. Even when investment firms and advisors follow the rules that govern the industry, they stand to earn substantial sums in commissions if they are skilled at their profession. Knowing this makes it particularly deplorable when brokerage firms and their employees engage in acts of misconduct in order to increase their profits. The firms and advisors that do so may benefit from these misdeeds, but their clients suffer financial losses as a result of their shady business practices. Regrettably, there are many ways to surreptitiously increase profits for advisors. Not all of these methods are illegal, but do fall under the category of breach of fiduciary duty and fraud when the best interests of the clients are set aside for the sake of profits.
Recently, the Securities and Exchange Commission leveled charges against Southern California-based Total Wealth Management for just such infractions. According to the SEC complaint, Total Wealth Management’s chief executive officer and owner, Jacob Cooper; their chief compliance officer, Nathan McNamee; and an investment advisor, Douglas Shoemaker, all breached their fiduciary responsibilities. The enforcement division of the SEC claims that these individuals held revenue sharing agreements that were not disclosed to their clients. These agreements resulted in kickbacks that were paid to the individuals as “revenue sharing fees.” This created conflicts of interest because the investments that were being suggested were proprietary funds known as the Altus family of funds. The company also misrepresented the level of due diligence that it provided on the investments that it recommended.
“Investment advisers owe a fiduciary duty of utmost good faith and full and fair disclosure to their clients,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office. “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.”
Not only did the company hide the fact that it was receiving these revenue sharing fees, it also resorted to some rather unsavory business practices to garner new business. Per the SEC, Cooper attempted to draw in more investors through the use of paid radio advertising, yet continued to fail to inform them of the fees that Total Wealth received from the funds that Cooper was promoting.
Additionally, this is not the first time that acts of fiscal impropriety have been committed by Cooper. He founded Total Wealth Management in 2009 after he resigned from his previous position with SunAmerica Securities amid accusations by a client that he had forged the client’s signature. More recently, there was a complaint filed against Cooper in Superior Court relating to how Cooper went about touting Total Wealth Management.
“During these radio shows, Cooper would urge investors to move from investing in the volatile stock market to safer investments that TWM would assist his investment-adviser clients to find,” the suit states. “Cooper told listeners his extensive experience in personal wealth management rendered him an expert source of financial guidance through tough economic times.”
Although Cooper made claims regarding his “extensive experience,” according to Cooper’s broker disclosure report, he occupied each of his previous positions as a broker for less than two years, and he is no longer registered with any securities firms.
The SEC’s stance in the administrative proceedings is that these kickbacks were intentionally undisclosed to Total Wealth Management’s investors and the company knowingly violated the antifraud provisions of federal securities laws. It further contends that the firm failed to comply with Form ADV disclosure requirements and the rule governing custody. The regulator is seeking to have the erroneously obtained funds forfeited, interest applied, as well as other financial penalties. They are also seeking a seek-and-desist order to prevent any of these individuals from engaging in further actions of this nature.
The Blum Law Group specializes in helping people who have been victimized by brokers or investment firms. If you believe you have suffered financial losses as a result of the acts of fraud and misrepresentation by Total Wealth Management, Mr. Cooper, Mr. McNamee, or Mr. Shoemaker, please give us a call at 1-877-STOCK-LAW for a free consultation.