THE INVESTMENT SCANDAL : Irvine Funds’ Loss May Top $75 Million : * Securities: SEC officials raise estimate of amount missing from two investment companies.
Securities and Exchange Commission officials said Friday that the amount of client money missing from the two companies controlled by Irvine investment adviser Steven D. Wymer could exceed $75 million, and that up to $200 million in funds that had been under Wymer’s direct control could be in jeopardy.
Meanwhile, some California cities also learned Friday that at least $18 million of their funds are frozen as a result of a widening financial scandal that surfaced after an investigation of the handling of excess funds of several Iowa municipalities.
The government also said some banks and thrifts were clients of Wymer’s companies.
The SEC filed a civil suit this week charging Wymer with fraud, but officials said scanty records were hampering their ability to detect where the missing money went.
A federal judge on Wednesday froze an estimated $1.2 billion in assets of 64 clients of Institutional Treasury Management and Denman & Co. of Irvine, as well as at least $1.5 million of Wymer’s personal assets, which include houses in Newport Beach and Florida, two boats and a jet airplane, according to SEC documents.
A court-appointed receiver began scouring “virtually nonexistent” records looking for at least $75 million that allegedly disappeared from Wymer’s two companies.
U.S. District Judge Richard A. Gadbois Jr. also placed a seal on Wymer’s client list at the request of the SEC.
The agency wants the list kept secret to avoid runs on any of the banks or thrifts with funds invested and to avoid causing additional headaches for government entities whose money is at risk, a source close to the SEC said.
The cities of Orange, La Quinta, Torrance and Palm Desert had at least $18 million invested with Wymer, according to city officials and court documents. City treasurers expressed hopes--based in some cases on reassurances from federal officials--that much of the money, though frozen, was not missing and would eventually be returned.
The majority of Wymer’s clients were in Iowa, where local treasurers were rocked by the disclosure and scrambled in some cases to meet payrolls without the money this week.
SEC officials declined to identify the banks and thrifts among the clients of Wymer’s companies. They said that federally insured institutions constituted a fairly small percentage of Wymer’s client list.
“The big concern is that if you have governmental entities or municipal governments with payroll or pension funds at risk here, we have got to get a handle on this as quickly as possible,” William R. McLucas, SEC enforcement chief in Washington, said in an interview.
Investors at the greatest risk of having lost money, said McLucas, are those who allowed ITM to retain either the assets or cash for their investments. The safer route is to place the security with a third party to safeguard against just what the SEC says happened in this case.
“The only people in jeopardy are people who did not maintain separate custodial arrangements for the securities and assets,” McLucas said. “If the adviser had access to the actual assets or moneys and they weren’t in a separate account with an intermediary, those are the assets and accounts that we are concerned about.”
As much as $200 million or more of the $1.2 billion under management by Wymer could have been in that category.
“I’m guessing that it’s a couple hundred million, but we don’t know the answer yet,” McLucas said.
Lori A. Richards, SEC assistant administrator of enforcement in Los Angeles, refused to disclose the number of Wymer clients in California, but said they were mostly small cities and other public entities, including water districts and recreational districts, located across the state.
Richards said the SEC was contacting the clients as quickly as possibly and was working “literally day and night” to find what had become of the missing money.
“We were stunned, of course,” said City Councilman William G. Steiner of Orange, who learned that his city had $7 million invested with Wymer. “As recently as June, our auditors confirmed that the $7 million was in fact safe and secure. However, we were shown documents that we’re now being told were forged. So it’s a serious, serious business.”
The city is facing a $4.6-million deficit this year and can little afford to lose millions, Steiner said.
Wymer’s attorney, Michael Perlis, said Wymer had not looted his clients’ money, but declined to elaborate on what had happened to the money. He said Wymer was “in the United States” after having won a court fight over surrendering his passport.
The office doors were locked at the Institutional Treasury Management office Friday, as were the wooden gates to Wymer’s home.
According to licensing documents Wymer filed with the SEC, the 43-year-old Fullerton native received a bachelor’s degree in mathematics from UC Irvine in 1969. He has worked in a variety of financial management jobs, including a number of Orange County firms, according to SEC documents.
In 1983, he worked for six months as a vice president of the Ronald H. Olsen Co. in Irvine, where he was sued by an investor. The suit was never resolved.
He also worked from January, 1980, to April, 1982, as director of futures operation at Comark Securities in Newport Beach.
Newport Beach officials sighed in relief Friday because they said they had stopped using ITM only this week--purely by coincidence.
“We used ITM for advice but moved all funds out of an ITM-managed account earlier this week,” Deputy Finance Director Dick Kurth said. “Be it careful planning or dumb luck, we didn’t lose any money with them.”
Efron reported from Irvine and Frantz reported from Washington. Times staff writers Dan Weikel, Susan Christian and Bob Elston contributed to this report.
