Tuesday, April 2, 2013

SEC Obtains Asset Freeze Against Massachusetts-Based Investment Adviser Stealing Money from Clients

The SEC announced an asset freeze against a Massachusetts-based investment adviser charged with stealing money from clients who were given the false impression they were investing in a hedge fund.

In a complaint unsealed today in federal court in Boston, the SEC alleges an investment advisor and Insight Onsite Strategic Management in Wilmington, Mass., raised at least $1.1 million from clients that was used for purposes other than investing in the hedge fund they purported to manage. Investor money was merely transferred to the firm’s chief investment officer and other members of her family who spent it on personal expenses. The firm reported in SEC filings that it has $100 million in assets under management, however the purported hedge fund actually has no assets.

U.S. District Judge Mark L. Wolf granted the SEC’s request for an emergency court order to freeze the assets of the investment advisor and his firm as well as others who received investor money and have been named as relief defendants for the purposes of recovering investor funds in their possession.

According to the SEC’s complaint, the investment advisor’s scheme began around 2009. While soliciting funds, the investment advisor convinced one client and his wife to invest $275,000 in the hedge fund that he claimed would generate them about $1,000 per month in returns. The investment advisor also solicited a 20-year client who after considering his sales pitch decided not to invest in the hedge fund because she considered it too risky of an investment for someone her age. But the investment advisor apparently took action to obtain funds from the client’s IRA account and wire thousands of dollars to an Insight Onsite Strategic Management bank account. The client was not aware of the transfers and did not authorize them.

The SEC alleges that instead of using investor funds to purchase shares in a hedge fund or to manage or develop a hedge fund, the investment advisor transferred control of client money to a friend who works at the firm. Investor funds also were transferred to her children, and a company called The Knew Finance Experts. They used investor money to pay legal bills and other personal expenses at gas stations, drugstores, and restaurants.