A former president of the National Association of Personal Financial Advisors has been charged with taking kickbacks from unregistered investment pools in which his Wisconsin advisory firm placed $102 million in client assets.
James Putman, founder, majority owner and CEO of Wealth Management LLC in Appleton, Wisc, and Simone Fevola, the firm's former president, a minority owner and
chief investment officer, each accepted $1.24 million in undisclosed
payments derived from investments made by the unregistered investment
pools, according to a civil complaint filed by the Securities and Exchange Commission. Putman could not be reached for comment on the charges by press time.
The SEC announced Thursday that it obtained an emergency court order freezing Wealth Management's assets because the firm is charged with engaging in a kickback scheme and other fraudulent conduct involving six unregistered investment pools it managed. The SEC also alleges that Wealth Management, Putman and Fevola misrepresented the safety and stability of the two largest investment pools and placed clients into these investments even though they were inconsistent with some clients' objectives.
Putman, CFP, claims on his Web site that he served as president of the National Association of Personal Financial Advisors (NAPFA) in 1996-1997 and is cofounder and first president of the Northeast Wisconsin Chapter of the International Association for Financial Planning, now the Financial Planning Association. He adds that the firm has been named among the "100 Great Financial Planners" by Mutual Funds magazine, one of the "250 Best Financial Advisers" by Worth magazine, and one of the "150 Best Financial Advisers for Doctors" by Medical Economics magazine.The firm, a fee-only registered investment advisor, reported $131.5 million in assets under management and 447 accounts in its ADV statement filed in April with the SEC. The report says the firm's clients are high-net-worth individuals as well as others for whom it does financial planning, portfolio management and selects other advisors. The firm says the main focus of its business is integrated financial planning for families and individuals, and while investment advice is an important part of its business, it's not the main focus.
The ADV report also lists seven funds for which Wealth Management is a partner, manager or advisor, with a total value of approximately $104 million and minimum investments ranging from $50,000 to $1 million. The largest of these funds is the WML Gryphon Fund LLC, with $38,163,673 in assets, and the WML Watchstone Partners LP with $50,092,324.
The emergency court order issued by U.S. District Judge William Greisbach freezes Wealth Management's assets and the investment pools. A receiver is to take control of the operations of Wealth Management as well as the investment pools.
According to the SEC's complaint, Wealth Management, Putman and Fevola caused clients to invest in the pools from May 2003 through August 2008, and Wealth Management claims to currently have approximately $102 million of its clients' assets invested in these pools. The SEC's complaint alleges that the pools' assets are largely illiquid, the reported values of their assets appear to be substantially overstated, and Wealth Management and Putman have been providing redemptions to investors based on likely overstated valuations.
The SEC's complaint charges each of the defendants with violations of the antifraud provisions of the federal securities laws, and Putman and Fevola with aiding and abetting Wealth Management's violations. In addition to seeking emergency relief, the SEC's complaint seeks permanent injunctions barring future violations of the charged provisions of the federal securities laws, disgorgement of the defendants' ill-gotten gains plus pre-judgment interest, and financial penalties from the defendants.
The SEC's investigation is continuing.