The Securities and Exchange Commission charged Total Wealth Management, Inc., an advisory firm headquartered in San Diego, California, with breach of fiduciary duty and fraud, alleging that the firm received kickbacks in exchange for recommending certain investments to their customers.
According to the SEC complaint, Total Wealth Management and a family of proprietary funds called the Altus Funds engaged in a revenue-sharing agreement that financially benefited both parties when positive activity occurred within the fund. The SEC subsequently found that Total Wealth Management placed approximately 75% of its 481 clients into the proprietary Altus Funds group, which the Commission argues was a clear conflict of interest given that Total Wealth Management neglected to disclose their revenue-sharing arrangement with firm clients.
Instead, Michele Wein Layne of the SEC's Los Angeles Regional Office said that Total Wealth Management violated its fiduciary duty of good faith and full and fair disclosure by "its pervasive practice of placing clients in funds holding risky investments while concealing the revenue-sharing fees they paid themselves."
The SEC uncovered evidence that Total Wealth Management executives not only failed to disclose the relationship, they took significant steps to conceal the payment trail. For instance, firm founder and chief executive Jacob Cooper along with chief compliance officer Nathan McNamee and co-founder David Shoemaker allegedly created additional business entities whose purpose was "to further conceal the fact that they were receiving the payments."
The complaint also accused Cooper of further misleading investors about the level of due diligence that Total Wealth Management was actually engaged in with regards to investments selected by the Altus Funds.
Because the firm allegedly intentionally covered up the revenue-sharing agreement and in doing so placed clients at increased risk by neglecting fiduciary duty and good faith, the SEC charged Total Wealth Management with defrauding customers by failing to disclose the conflicts of interest and kickbacks received. The SEC charged Cooper with willful violations of the antifraud provision of federal securities laws and McNamee and Shoemaker with the aiding and abetting of the aforementioned law violations.
If you have invested with San Diego-based Total Wealth Management, Inc., or with its executives Jacob Cooper, Nathan McNamee and/or David Shoemaker, and associated conflict-of-interest-based or unsuitable recommendations or fraud has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.
News: SEC Charges San Diego-Based Investment Adviser (U.S. Securities and Exchange Commission, Release 2014-76)