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U.S. Securities and Exchange Commission

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 20972 / March 25, 2009

Securities and Exchange Commission v. The Nutmeg Group, LLC, et al., Case No. 09CV1775 (N.D. IL)

SEC OBTAINS EMERGENCY RELIEF AGAINST THE NUTMEG GROUP, LLC, A CHICAGO-AREA INVESTMENT ADVISER, AND TWO OF ITS PRINCIPALS FOR ALLEGED FRAUD AND CUSTODIAL VIOLATIONS

The Securities and Exchange Commission announced today that on March 24, it obtained emergency relief against investment adviser The Nutmeg Group, LLC, and its principals Randall and David Goulding. In its complaint, filed March 23, the Commission alleges that Nutmeg, which controls and provides investment advice to 13 investment funds, and advises two additional investment funds, has misappropriated client assets, made misrepresentations to its clients, failed to comply with its custodial obligations and failed to keep required books and records.

Based on the Commission's allegations, the Honorable William J. Hibbler of the United States District Court for the Northern District of Illinois entered an order (TRO) temporarily enjoining Nutmeg from violating Sections 204, 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 (the "Advisers Act") and Rules 204-2, 206(4)-2, and 206(4)-8 thereunder. The TRO also temporarily enjoins Randall Goulding from violating Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder, aiding and abetting violations of Sections 206(1) and (2) and Section 206(4) of the Advisers Act and Rules 204-2, 204-2, 206(4)-2 and 206(4)-8 thereunder, and David Goulding from aiding and abetting violations of Sections 206(1) and (2) and 206(4) of the Advisers Act and Rules 206(4)-2, 206(4)-8 thereunder. Additionally, the TRO freezes Nutmeg's assets.

According to the complaint, Nutmeg and the Gouldings misappropriated over $4 million in client assets by transferring them to third parties. The complaint further alleges that Nutmeg did not fully document the Funds' investments, improperly commingled Fund assets, and cannot value the Funds' holdings. As a result, net asset and other investment values have been incorrectly reported to investors. Nutmeg has also failed to keep required books and records, and to keep assets with qualified custodians, which has further put client funds at risk, according to the Commission. Randall Goulding, of Deerfield, Illinois, was convicted in 1992 of a felony in connection with a tax evasion and money laundering scheme.

In addition to the emergency relief already obtained, the SEC is seeking preliminary and permanent injunctions and disgorgement against all defendants, and civil penalties against Nutmeg and Randall Goulding. The lawsuit also seeks disgorgement from relief defendants David Goulding, Inc., David Samuel, LLC, Financial Alchemy, LLC, Philly Financial, LLC, Samuel Wayne and Eric Irrgang. The matter is ongoing.

SEC Complaint

 

http://www.sec.gov/litigation/litreleases/2009/lr20972.htm


Modified: 03/25/2009