Orange, Other Investors Could Be Out Millions : Investigation: Assets of two Irvine financial firms frozen. As much as $200 million is feared in jeopardy.
More than $75 million may be missing from two companies controlled by Irvine financial adviser Steven D. Wymer, whose clients included some California cities and banks, thrifts and government agencies from 12 other states, officials said Friday. Securities and Exchange Commission officials said that up to $200 million of the $1.2 billion Wymer managed was under his direct control and could be in jeopardy.
A federal judge froze the assets of Institutional Treasury Management and Denman & Co. of Irvine on Wednesday, after the SEC charged Wymer with fraud and said that at least $75 million was unaccounted for.
U.S. District Judge Richard A. Gadbois Jr. also froze Wymer’s personal assets, which include a million-dollar home in Newport Beach, as well as other properties, two boats, two Mercedes-Benzes, and a jet airplane, according to property records and co-workers.
By Friday, the cities of Orange, La Quinta, Torrance and Palm Desert had discovered that at least $18 million they had invested with Wymer was inaccessible because the funds had been frozen, according to city officials and court documents. But city treasurers expressed hopes--based in some cases by reassurances from federal officials--that their money, though frozen, was not missing, and would eventually be returned.
Just whose money was where wasn’t clear Friday, and officials said their accounting scramble was being hampered by records that were “virtually nonexistent.”
In addition, Judge Gadbois had sealed Wymer’s list of 64 clients at the SEC’s request. A source close to the SEC said the agency wants the list kept secret to avoid runs on the few banks and thrifts that had invested with the Irvine companies. The majority of Wymer’s clients were government agencies in Iowa.
In an interview Friday, William R. McLucas, SEC enforcement chief in Washington, said: “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.”
Investors in most jeopardy of having lost money, said McLucas, are those who allowed ITM to hold 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,” said McLucas. “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 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,” said McLucas.
Lori A. Richards, SEC assistant administrator of enforcement in Los Angeles, refused to disclose the exact 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.
A team of SEC investigators was flying to Southern California from Washington Friday evening to work through the weekend reviewing the documents.
“We were stunned, of course,” said City Councilman William G. Steiner of Orange, who learned late Thursday that his city had invested $7 million 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.
“We don’t know whether it’s gone or just frozen, and there’s very little we can do to find out at this point,” said Orange finance director Ted Schoettger. But Schoettger said that the city had $115 million in various investments and would not be immediately affected by the assets freeze.
Torrance Treasurer Tom Rupert, who had $6.2 million invested with Wymer’s companies, said he was assured by federal investigators that his money was on ice but safe in a sealed account. La Quinta had $4.9 million invested, according to SEC documents, but city officials did not return telephone calls for comment. Palm Desert assistant city manager Paul Shillcock said his city was also an investor but did not know how much municipal money was affected.
Wymer’s attorney, Michael Perlis, said Wymer had not looted his clients’ money, but declined to elaborate on what had happened to the allegedly missing funds. Perlis said Wymer was “in the United States” and had defeated SEC attempts to make him surrender his passport. But he would not offer any other details about his client.
Perlis said he had opposed placing Wymer’s companies into receivership and freezing the funds because it would created “a panic” among investors. The attorney said he would attempt to persuade the judge to reverse the decision at a Dec. 20 court hearing.
Wymer resigned from both companies on Monday, Perlis said.
The office doors were locked at the Institutional Treasury office Friday, and the heavy wooden gates at Wymer’s walled home in Newport Beach were shut.
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, and had worked at several Orange County finance firms in the early 1980s before launching Denman in 1983.
Wymer was the featured speaker at a meeting of the California Municipal Treasurers Assn. in Anaheim in October, according to a competitor.
“His reputation was quite good,” said Craig Ehlenberger of Advanced Financial Management Inc. in Rancho Palos Verdes. “But people who saw what he was doing from our side of the business had suspicions of his approach. His promises seemed a little exorbitant.”
“I remember reading (his resume), and I was impressed,” said Rupert, who said Torrance earned an average annual return of 6.95% over five years and was a happy customer until this week. “He was well qualified in the field.”
How Wymer got into finance is unclear. In the late 1970s, he was in the construction business in Eldorado Springs, Colo., where he was the defendant in at least five lawsuits by creditors, including a foreclosure, according to court records and attorneys who pursued him.
Boulder attorney Joseph Riddle won a $13,547 judgment against Wymer in 1979 for debts to Boulder Lumber Co., records show. Then Wymer moved to Newport Beach.
“I chased him to California (to try to collect the debt) and had to use a couple of private eyes out there to serve him. . . .” Riddle said Friday. “He was a real slick dude, real good looking, real ladies’ man, tall, handsome guy, big money, big spender.”
Another creditor, Valleylab Inc., also brought its claim against Wymer to California, and had him arrested “in his pajamas” for failing to appear at a court hearing on a $14,121 debt, according to Santa Ana attorney William R. Hart, who handled the case. Hart said Wymer eventually paid.
“It’s incredible to me that he was able to achieve a position of trust at that level with other people’s money, given the fact that the only time I had contact with the guy was in an Orange County courtroom,” Hart said. “He was handcuffed and wearing an orange jumpsuit. He was a judgment debtor who couldn’t post bail of $1,500.”
The SEC, however, had no disciplinary record against Wymer.
One former client, Colton Treasurer Michael J. Williams, said he fired Wymer in 1988 after Wymer failed to produce documentation that Williams had requested to verify trades made for the city. A later audit showed that Denman & Co. also owed the city $75,000 in interest, which had not been mentioned until the city demanded payment, Williams said.
“To me, it just didn’t pass the smell test from Day One,” said Williams, a CPA. He said Wymer had hired respected former municipal finance officials as salesmen to attract clients, and offered higher rates of returns than other companies.
“He just seemed to be real slick, and everyone was talking about how smart he was and how he could get these investment returns of 12% when everyone else was getting 8%,” Williams said. “It’s pie in the sky.”
Efron reported from Irvine and Frantz reported from Washington, D.C. Times staff writers Dan Weikel, Susan Christian and Bob Elston and researcher Ann Rovin in Denver contributed to this report.
