U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22504 / October 3, 2012
Securities and Exchange Commission v. GEI Financial Services, Inc., Norman Goldstein, and Laurie Gatherum, Civil Action No. 12-7927 (N.D. IL, filed October 3, 2012)
SEC CHARGES CHICAGO-BASED INVESTMENT ADVISER AND ITS OWNERS FOR FRAUD
The Securities and Exchange Commission on October 3, 2012 charged Chicago-based GEI Financial Services, Inc. (GEI Financial), a registered investment adviser, and its owners, Norman Goldstein (Goldstein) and Laurie Gatherum (Gatherum), for defrauding their advisory clients — including the GEI Health Care Fund 2001, L.P. (Health Care Fund) — by taking at least $147,000 in excessive fees and capital withdrawals from the Fund since 2009. According to the SEC’s Complaint filed in the United States District Court for the Northern District of Illinois, Goldstein and Gatherum failed to disclose to investors in the Health Care Fund that their investment adviser removed performance hurdles — including a bench mark and high water marks — in order to draw additional fees.
The SEC further alleges that GEI Financial, Goldstein, and Gatherum never told their advisory clients that the State of Illinois stripped Goldstein of his securities registrations in 2011, barring him from providing investment advisory services in Illinois. Even after losing his registration as an adviser, Goldstein continued to make all investment decisions for GEI Financial’s clients and for clients of GEI Management, LLC — an affiliated unregistered investment adviser owned by Goldstein and Gatherum.
The Complaint also alleges that Goldstein and Gatherum caused GEI Financial to violate numerous compliance rules and other requirements of the Investments Advisers Act of 1940 (Advisers Act). GEI Financial never had adequate written compliance policies and procedures or a written code of ethics even though SEC examiners alerted the firm and its owners of this deficiency in 2008. GEI Financial also has not updated its Form ADV — a report required by all SEC-registered investment advisers — since November 2008, and never prepared or distributed a required brochure — called a Form ADV Part 2 — to clients.
As a result of the conduct described in the Complaint the SEC alleges that GEI Financial, Goldstein, and Gatherum directly and indirectly violated Sections 204, 204A, 206(1), 206(2), and 206(4) of the Advisers Act and Rules 204-1, 204A-1, 204-2, 204-3, 206(4)-7, and 206(4)-8(a)(1) thereunder. The SEC seeks permanent injunctions, disgorgement including prejudgment interest, and civil penalties from GEI Financial, Goldstein, and Gatherum.
The SEC’s investigation was conducted in the Chicago Regional Office by Andrew Shoenthal and Paul A. Montoya of the SEC’s Asset Management Unit, with assistance from Jeson Patel, Malinda Pileggi, and Vanessa Horton of the SEC’s investment adviser examination program. The litigation is being handled by John E. Birkenheier.