Investors’ Funds Traced to New York : Securities: SEC is searching for $75.4 million that disappeared from clients’ accounts handled by a Newport Beach investment adviser.
Investigators have traced to a New York brokerage firm $65 million that disappeared from client accounts controlled by a Newport Beach investment adviser who has been charged with securities fraud, officials said Saturday.
But investors in 13 states and Micronesia may not get their money back soon because Steven D. Wymer’s financial records are such a tangled mess that investigators are not sure how much money is missing or who it belongs to, said Los Angeles attorney Robert Carlson, the court-appointed receiver.
“We think we may have traced the money out of Iowa into brokers’ accounts in New York, and we’re in the process of getting people to (freeze) that money and not disburse it,” said Carlson. “That doesn’t mean that some clients haven’t lost money.”
The Securities and Exchange Commission has alleged that $75.4 million was missing from client accounts, but officials have said the figure could be much higher. The SEC has accused Wymer of committing fraud by telling clients they had money that was not in their accounts, by moving money between accounts, and overcharging one client $10.4 million for selling securities.
Wymer may have told some clients that they had earned money from trades of U.S. Treasury securities when there may not have been profits, Carlson said.
The SEC has not alleged that any of the money was looted by Wymer, but cited “commingling of funds.”
Carlson said the $65 million was traced through several brokerage accounts controlled by Wymer to accounts he had established at Shearson Lehman Bros. in New York. The firm is not suspected of any wrongdoing.
A federal judge Wednesday froze an estimated $1.2 billion in assets of 64 clients of Institutional Treasury Management and Denman & Co. Wymer was president and sole shareholder of both Irvine companies until he resigned Monday, shortly before the SEC filed fraud charges against him.
The SEC also requested a freeze on Wymer’s personal assets after investigators questioned him about the missing money. Wymer cited the 5th Amendment and refused to tell investigators anything other than his name, the SEC alleged in court papers.
Carlson said Wymer had also removed from his Irvine office at least 11 boxes of records that were returned Friday by an unidentified woman.
Behind a locked door, a team of SEC investigators were poring over the records Saturday, while other SEC agents fanned out to banks and investment firms across the country to unravel a widening financial scandal that has rattled local governments, banks, thrifts and pension funds.
In a painstaking process, investigators are trying to retrieve and reconcile three sets of records--Wymer’s, his clients’ and accounts at the banks and trading companies that were custodians of the invested money.
Wymer dropped plans last month to set up an offshore investment fund on the island of Guernsey off England, Carlson said. That was shortly after the SEC began inquiring about questionable activity in an account Wymer managed for Marshalltown, Iowa. But Carlson said that the offshore fund plan “looks perfectly legal and perfectly innocent” and that he was satisfied that no money had been sent there.
“On the other hand, it certainly isn’t inconceivable that if he saw (an SEC probe) coming, and if his behavior is as bad as it appears, that he would have tried to park money outside the United States,” Carlson said.
Carlson said he is not aware of any other investigation into Wymer, 43, a Fullerton native who left Colorado 11 years ago with at least $28,000 in court judgments against him. Wymer owns expensive homes in Newport Beach and Florida, two Mercedes-Benzes and a private jet, according to property records and SEC documents.
“Let me put it this way,” Carlson said. “I don’t know what they’re doing, but if I were the U.S. attorney, I’d be looking into it.”
Meanwhile, court documents filed by the SEC show a complex flurry of recent financial transactions by Wymer in an alleged attempt to cover up missing money and discrepancies in how much he told clients their accounts contained.
According to the SEC, Wymer’s two companies, Institutional Treasury Management and Denman & Co., managed $1.2 billion for 64 clients. The clients included cities and counties in Iowa and California, among them the cities of Orange, Torrance, La Quinta and Palm Desert. The companies also managed money for various banks and thrifts, including First National Bank & Trust in Illinois, Bank of New Mexico, Stockton Savings Bank, and for Carpenters Pension Trust for Southern California.
Wymer had sole discretionary control over the portfolios of 12 of the 64 clients, who had combined assets of $400 million.
Not all of that $400 million is necessarily missing, Carlson said, though investigators are most concerned about accounts Wymer had set up at Refco Securities Inc., a reputable New York broker-dealer.
“He had these discretionary accounts, and as I understand it he ran them himself,” Carlson said. “He did not run them through the system he had at ITM. The bulk of the accounts were handled in a more normal fashion, and we have no reason at this point to question the transactions in those accounts.”
But in the discretionary accounts, Carlson said, Wymer could trade government securities at will without approval of the client. More significant, he did not provide some clients with documentation from brokerage firms to substantiate securities trades made on their behalf, Carlson and former Wymer clients said. Instead, he sent clients statements on ITM letterhead, summarizing the trading activity, profits or losses and the account balance, they said.
Michael J. Williams, treasurer of Colton, said he fired Wymer after the adviser failed to heed repeated requests to produce documentation to substantiate trades. Williams said an audit later revealed that Wymer owed Colton $75,000 in accrued interest that the statements failed to mention.
Wymer told Marshalltown, Iowa, that its account at Refco held $3 million to $3.5 million between June and October, when in fact it held zero coupon bonds valued at only $110,000, the SEC alleged. SEC investigators charged that after they questioned the transactions, Wymer shuffled other money--including $3 million from his personal account--to make it appear as though the Marshalltown account had not been touched.
Carlson said investigators are examining several ways Wymer may allegedly have misappropriated funds:
* That some clients’ accounts fared poorly, and Wymer shuffled money from other clients’ accounts either to cover trading losses or to inflate profits.
* That Wymer siphoned off some client profits, and reported smaller gains.
* That Wymer allegedly conducted a kind of Ponzi scheme, where early investors were paid high rates of returns with the money provided by later investors, helping Wymer establish a track record of success that attracted more investors.
“At this point, it’s conceivable that all three may be true,” Carlson said.
Carlson said that Wymer could report whatever performance results he wanted the client to see--in some cases returns of 20% to 30%. Carlson said many clients earned returns of 8.5% to 9% last year, when Treasury security yields were far lower.
“I do think it’s quite possible that this fellow was quite talented and that he knew what he was doing, but he wasn’t satisfied with excellent results, he wanted something even more than that,” Carlson said.
