Chris Bean is living one of an advisor’s worst nightmares.
Bean, an advisor with Private Advisory Group, a Redmond, Wash.-based RIA, is calling investors and becoming a public voice in the media after Lake Oswego, Ore., asset manager Aequitas Capital Management appears to have collapsed.
“These people were lying to my face,” Bean says. “Not just to me, but to my clients, too, who are now facing substantial financial losses. I’m angry that someone has put us into this position.”
On Tuesday, Aequitas Capital hired FTI Consulting to assist in restructuring and a likely bankruptcy.
Bean says the news of Aequitas’s problems took him by surprise. Around 330 of his clients have a portion of their assets invested with Aequitas, and he was adding to their positions as late as December 2015.
“We’re learning that their assets were overstated,” Bean says. “They had to restate their financials and what originally looked like $650 million in book value quickly went to $321 million of unsubordinated assets in private notes that weren’t even worth the $321 million.”
Bean invested money on behalf of more than half of his clients in Aequitas’s private notes, which promised a return of 8 percent to 12 percent with little to no risk, while offering 90-day liquidity. “They were offering substantially higher than market rate returns for what we thought was less risk,” Bean says. “We’ve been working with them for six years.”
Those promises may have been too good to be true, says Bob Banks, a securities litigator at Samuels, Yoelin and Kantor, a Portland, Or., law firm.
“If you read any of the prospectuses on the secured subordinated notes, the subordinated positions are so significant that there wasn’t much in the way of security,” Banks says. “They were telling people these were 90-day revolving notes. I think that fits the category of ‘too good to be true.’”
Samuels, Yoelin and Kantor has launched an investigation into Aequitas’s practices on behalf of several investors.