U. S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21055 / May 21, 2009
SEC v. Wealth Management LLC, James Putman, and Simone Fevola, Civil Case No. 1:09-cv-506, USDC, E.D.Wis.
SEC OBTAINS ASSET FREEZE OF WISCONSIN INVESTMENT ADVISER CHARGED IN KICKBACK SCHEME
The Securities and Exchange Commission (“Commission”) announced that on May 20, 2009, it filed an emergency civil action in the U.S. District Court of the Eastern District of Wisconsin charging Wealth Management LLC (Wealth Management), a registered investment adviser located in Appleton, Wisconsin, James Putman (Putman), Wealth Management’s founder, majority owner, and Chief Executive Officer, and Simone Fevola (Fevola), Wealth Management’s former President and Chief Investment Officer, with engaging in a kickback scheme and other fraudulent conduct involving six unregistered investment pools they managed.
The Commission’s complaint alleges that Wealth Management is a financial planning firm for families and individuals and also serves as General Partner or Managing Member for the investment pools. The complaint alleges that Wealth Management, Putman, and Fevola caused clients to invest in the pools throughout the period of May 2003 through August 2008 and that Wealth Management claims currently to have approximately $102 million of its clients’ assets invested in the pools. The complaint alleges that in 2006 and 2007, Putman and Fevola each accepted at least $1.24 million in undisclosed payments derived from certain investments made by the pools, while continuing to cause clients to invest in the pools. The complaint alleges that Wealth Management, Putman and Fevola have also breached their fiduciary duties and engaged in fraud by misrepresenting the safety and stability of the two largest pools, and by placing their clients into these investments even though they were unsuitable for some of their clients. The complaint alleges that the pools appear to have limited remaining assets and that it appears likely that the reported values of the pools are substantially overstated. The complaint alleges that Wealth Management and Putman have received and continue to receive management fees on the basis of these likely overvalued assets, and that Wealth Management and Putman have been providing redemptions to investors based on likely overstated valuations.
In an order dated May 20, the Honorable Judge William Greisbach entered a temporary restraining order enjoining Wealth Management and Putman from violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)], the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder], and the Investment Advisers Act [Sections 206(1), 206(2), and 206(4) and Rule 206(4)-8 thereunder], aiding and abetting of Wealth Management’s violations of the antifraud provisions of the Exchange Act and the Advisers Act by Putman, and as to Wealth Management, violating Section 207 of the Advisers Act. Among other things, the Court also entered orders freezing the assets of Wealth Management and the investment pools and appointing a receiver over Wealth Management and the investment pools.