O.C. Investor Arrested on Fraud Charges

Investment adviser Steven D. Wymer was arrested at his Newport Beach home Tuesday on federal fraud charges in connection with what authorities now say is at least $95 million missing from his clients’ accounts.

Already facing a civil suit on fraud charges, Wymer was ordered arrested after prosecutors filed one criminal count of securities fraud and two counts of mail fraud. U.S. District Magistrate Judge Venetta S. Tassopulos scheduled a bail hearing for Thursday after Assistant U.S. Atty. Jean A. Kawahara described Wymer as “an economic danger to his community” as well as a flight risk and asked that he be held without bail.

Dressed in a gray, checked sweater and gray slacks and wearing horn-rimmed glasses, Wymer, 43, listened calmly as his new attorney, Paul N. Murphy, said his client would be unable to post bail immediately because all his personal assets are frozen. He was ordered held until the bail hearing while his attorneys try to work out a solution.

Outside of the courtroom, Murphy said Wymer would neither flee nor cause financial harm to his clients. Last week, Wymer persuaded another federal judge not to grant a Securities and Exchange Commission request to force Wymer to surrender his passport.

“He has adopted and has had a posture of complete cooperation with the government,” Murphy said.

Murphy said he is also part of the defense team of Charles H. Keating Jr., who has been convicted on state charges and is facing federal criminal charges in the collapse of Irvine-based Lincoln Savings & Loan.

The SEC alleged in court documents that Wymer had refused to answer questions about the seemingly missing money, at one point citing Fifth Amendment protections and refusing to tell investigators anything except his name.

The criminal charges, which had been expected after the SEC filed its civil suit last week, marked the latest twist in a financial scandal that has resulted in the freeze of $1.2 billion in assets from investors in California, 12 other states and Micronesia.

Many of Wymer’s clients were small cities and counties in Iowa and California, where officials say they thought their investments were secure because Wymer was investing their surplus tax dollars in U.S. Treasury bonds and other government instruments.

Prosecutors said they do not know whether more than $95 million from accounts that Wymer controlled is missing. The SEC last week had alleged in court documents that at least $75.4 million in investors’ money was unaccounted for. But the criminal complaint tallies at least $95 million in allegedly misappropriated money.

The complaint alleges that Wymer had been diverting clients’ money from accounts he managed through two Irvine-based companies, Institutional Treasury Management and Denman & Co. (Wymer resigned from both firms a week ago.) But neither federal prosecutors nor the SEC have disclosed what Wymer is alleged to have done with the money they say is missing.

However, the criminal complaint alleges that when the SEC began to inquire about discrepancies in Wymer’s books in October, Wymer took $65 million from a trust account that pooled money from many Iowa cities and towns, and that after several complex securities trades and bank transfers, he tried to use that money to cover up shortfalls in other accounts.

In addition, the complaint alleges, Wymer sold the securities of two clients for $10.4 million more than market value, keeping the profits. He is also alleged to have told at least four cities that they had a total of about $20 million more in their accounts than actually existed.

In one case, Wymer is alleged to have falsified documents to persuade Orange municipal officials that invested money from the city was intact, according to the complaint and the head of a New York brokerage where the money was kept.

In June, 1991, Orange had an audit and asked the brokerage, Refco Securities Inc., how much was in the discretionary account that Wymer managed. The city received a statement on Refco stationery, supposedly signed by a Refco employee, purporting to verify that the Refco account contained $7.1 million, the complaint alleges. In fact, the account held $4,000.

The form that Orange officials apparently received is clearly “a phony,” Sandy Maggio, president of Refco Securities, said Tuesday. “The funds are not here, nor were they ever here.”

When city officials faxed a copy of the form to his office recently, the first thing Maggio said he noticed is that it described a purchase of government Treasury bonds in an amount that did not end in a round number.

“Treasury bonds don’t trade in odd lots,” he said. “A treasurer should know that, and somebody should have questioned it.”

Maggio said that he is cooperating with the SEC and that no other discrepancies have turned up in accounts at the firm that had been managed by Wymer.

Wymer managed several client accounts at Refco, one of them for Orange, he said.

The Orange City Council, meeting in executive session Tuesday night, hired a law firm to help track down the missing money and deal with the federal agencies involved, Orange City Manager Ron Thompson said.

Though council members were gratified to learn of Wymer’s arrest, city officials are still getting very little information about what happened to the money--and whether any will be returned, Thompson said.

“Nobody is telling anybody anything,” he said. “I don’t know if they (investigators) know themselves yet.”

Other California cities that had invested with Wymer are Beaumont, Big Bear Lake, Grand Terrace, Indio, La Quinta, Loma Linda, Palm Desert, Sanger and Torrance. The Coachella Valley Joint Powers Utility also invested with Wymer. It is not clear whether money is missing from all of these accounts. SEC officials say they are trying to trace, recover and return as much money as possible to investors.

Wymer and his attorneys have not offered any explanation for what happened to the allegedly missing money. The 6-foot, 4-inch, burly Wymer offered only a pleasant “no comment” to reporters as he was led out of the courtroom, handcuffed and taken away to jail.

Despite his quick rise to prominence as an investment adviser, little is known about him. Wymer was president of his 1965 class at Fullerton Union High School, where he was on the track and field squad and cross-country running team. He received a degree in mathematics from UC Irvine, then was involved in construction in Colorado from at least 1976 to 1979, according to attorneys who sued him on behalf of Colorado creditors.

By 1981, he was working at the first of several financial firms in Orange County. By 1983, he had founded what was to become Denman & Co.

Wymer left Colorado about 11 years ago with at least $28,000 in court debtor judgments against him but now owns properties in Newport Beach, a Florida home in Manalapan, near Palm Beach, two Mercedes-Benz autos and two boats, property records show.

SEC documents and other public records indicate a flurry of financial activity--including Wymer’s sale of a jet worth an estimated $560,000--from October, when the SEC first questioned Wymer about irregularities in the accounts he managed for Marshalltown, Iowa, and Dec. 11, when his assets were frozen.

His attorneys have said frequent transactions were commonplace in Wymer’s business.

According to the criminal complaint, when SEC investigators arrived at Wymer’s offices Nov. 22, he told them that most of his books and records were on a truck being shipped to Institutional Treasury Management’s new office in Tallahassee, Fla. Wymer allegedly said he would have the records shipped back so SEC officials could inspect them the following week.

On Nov. 27, Wymer allegedly told the SEC that Marshalltown’s money had been “inadvertently” placed in ITM’s own accounts but that the funds had been “earmarked” for Marshalltown. He promised that the records would be available for the SEC to inspect two days later, the complaint alleges.

But when SEC investigators showed up Nov. 29, Wymer said he had been unable to find the records, the complaint alleges.

Wymer also had an assistant, Santa F. Vitteretti, who was on his personal payroll, according a statement given to the SEC by Susan M. Munson, ITM director of operations. Vitteretti removed documents from the ITM office Nov. 29, Munson said.

Postal inspectors staked out the Wymer home, saw Vitteretti’s car there twice and traced the vehicle, the complaint says. Investigators said she was later asked by investigators to return the documents and did so on Friday. But the complaint said SEC attorneys were unsure whether all of the records had been returned.

Munson also told the SEC that after Wymer resigned, she discovered bank accounts she did not know ITM had and found that Wymer had transferred and withdrawn client money without her knowledge, documents show.

Wymer’s home was also searched Tuesday for documents and other evidence, prosecutors said.

In addition to Thursday’s bail hearing, Wymer will have a hearing on the civil suit Friday, at which time his attorneys have said they intend to ask the judge to lift the freeze on his personal and corporate assets.

Times Staff Writer Michael Flagg contributed to this report.