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Federal regulators are alleging two Utah men and their investment businesses failed to disclose to clients they were receiving kickbacks for steering investor monies into certain funds.
The Securities and Exchange Commission also said Total Wealth Management CEO Jacob Keith Cooper of Washington and President Nathan McNamee of Hurricane violated federal laws though their use of unregistered investment funds, by not engaging independent auditors and failing to conduct due diligence before investing clients' monies.
Total Wealth's so-called Altus pooled-investment funds operated by the Utah men and a California resident, David Shoemaker of San Diego, held at least $55 million from at least 86 investors, according to the SEC administrative complaint filed Tuesday.
"Investment advisers owe a fiduciary duty of utmost good faith and full and fair disclosure to their clients," Michele Wein Layne, director of the SEC's Los Angeles Regional Office, said in a news release. "Total Wealth violated that duty with its pervasive practice of placing clients in funds holding risky investments while concealing the revenue sharing fees they paid themselves."
An attorney for Total Wealth had no comment on the case.
The SEC complaint also says the three failed to disclose to clients the conflicts of interest created by fee-sharing agreements with funds in which most of their client's money was placed.
Beginning in 2009, Cooper formed several Altus funds that funneled investors monies into certain entities, almost all of which had revenue-sharing arrangements with Total Wealth.
Those fees and the conflicts of interest created by them were not disclosed to investors, the SEC says. Total Wealth also did not conduct due diligence on the funds in which it invested.
"Indeed," says the complaint, "as early as 2010, Total Wealth knew at least two of the funds held in the Altus Capital Fund had financial issues."
Those included one company that had expenses, mostly commissions and fees, of $700,000 but income of only $5,000, the SEC alleges.
Total Wealth also hired an unqualified accountant to prepare financial statements, then the same firm audited those statements, a violation of regulations that call for an independent auditor, the agency says.
Two California investors who sued Total Wealth, Cooper and others late last year said they were drawn to invest by Cooper's statements on his weekly radio show called "Minding Your Own Business" where he discussed investments, including in his own companies.
Cooper told listeners about Total Wealth's investments that were safe even in a downturn and that returns had been up to 18 percent, according to the lawsuit.
The commission has ordered a public hearing in no later than 60 days to gather evidence and ordered those named in the action to respond within 20 days to the allegations that will be heard by an administrative law judge.