A former Los Angeles advisor is accused of stealing $1.2 million in excessive fees from a “high profile” athlete and the athlete's wife, whose persistent sleuthing uncovered the alleged scheme.
The U.S. Securities and Exchange Commission on Tuesday charged Jeremy Drake, formerly an advisor with Los Angeles-based HCR Wealth Advisors, with several counts of fraud stemming from the alleged scheme in the U.S. District Court for the Central District of California.
According the SEC’s complaint, Drake deceived the two wealthy clients, who are unidentified in court filings, about the advisory fees they were paying. From November 2012 until July 2016, Drake allegedly assured the clients that they were being charges a special VIP advisory fee of 0.15 to 0.2 percent of their AUM, when in fact, they were being charged 1.0 percent of their assets.
The alleged scheme was uncovered after years of persistent questioning by the athlete's wife, who, according to court documents, did not speak English and pursued her inquiries into the exessive fees via assistants and interpreters. When the wife, referred to as only "Ms. A" in the SEC filing, originally asked Drake about the management fees on their account, he respondend that VIP clients initially would pay HCR's 1 percent annual fee, but would be reimbursed throughout the year by "VIP credits" that would lower the fee to 0.15 and 0.2 percent of AUM.
Over nearly four years, the couple allegedly paid $1.5 million in management fees, $1.2 million more than Drake represented that they were paying. Of those excess fees, Drake received approximately $900,000 as incentives.
During the scheme, the SEC claims that Drake misled his clients via phone, text message and in person, sending false and inaccurate e-mails, deceptive management fee reports and fabricated documents to corroborate his lies.
The SEC alleges that while fabricating documents, Drake included falsified brokerage account statements showing the clients’ securities, and a falsified advisory agreement from his firm, HCR. Drake also allegedly used a fake e-mail address purported to belong to the clients’ brokerage firm to send deceptive e-mails and false documents concerning the clients fees.
The scheme began to unwind when the athlete’s wife, unnamed in court documents, began asking for clarification regarding advisory fees. The SEC alleges that Drake responded to the spouse’s queries with falsified documents, misleading statements and a false persona.
Drake created the persona of “Ron Stenson,” who he purported to be an employee of Charles Schwab Advisor Services who could help explain the HCR fee system. In doing so, the SEC claims that Drake created a fake e-mail account for Ron Stenson and participated in e-mail conversations as both himself and his false persona. The deception allegedly extended to the licensing of a telephone number offered to the client’s spouse as a contact for Ron Stenson. According to the complaint, Drake also allegedly persuaded a confederate to pose as Stenson to corroborate his story.
Toward the end of June 2016, the wife became convinced that Drake had been lying to her about the management fees, according to court documents, and contacted Schwab. Schwab then contacted HCR about Drake.