Judge Lifts Freeze on Most Funds in Wymer Accounts : Securities: Receiver accounts for $760 million managed by the investment adviser. Orange and other cities appear to have lost about $45 million.
A federal judge Friday lifted a freeze on most of the money remaining in accounts managed by Newport Beach investment adviser Steven D. Wymer, whom federal authorities have charged with securities fraud.
Receiver Robert E. Carlson reported that at least $760 million in 76 accounts appears to be mostly intact, and U.S. District Judge Richard A. Gadbois Jr. authorized release of the funds. But officials offered little hope that they would recover more than $100 million that is allegedly missing or misappropriated.
The court’s order came as a relief to some investors, which include cities, schools, libraries, pension funds, banks and thrifts in 13 states and Micronesia. Some public agencies were having trouble meeting payrolls without the cash they had entrusted to Wymer’s Irvine companies, Institutional Treasury Management Inc. and Denman & Co., to invest in U.S. government securities.
Gadbois’ order does not affect the freeze on client accounts that appear to have been tampered with or on Wymer’s personal assets.
Ten California cities, including Orange and Torrance, and a California utility appear to have lost nearly $45 million, according to Carlson’s report.
“The problem is that he created unauthorized accounts, and the city was unaware that these accounts existed,” said Michael B. Jeffers, attorney for Orange, which appears to have lost $7.1 million. Jeffers said Wymer had reported to clients both fake trades and profits that never existed.
Orange issued a press release Friday saying the $7.1 million represents only 6% of its investment portfolio and that the city’s “credit and day-to-day operations will not be affected.”
Meanwhile, Wymer’s attorney said Friday that he will appeal a federal magistrate’s decision not to grant Wymer bail. Wymer is charged with both civil and criminal securities fraud, and he faces a minimum 10-year prison sentence. He denies any wrongdoing.
Carlson’s report is the first public accounting of Wymer’s finances. But with estimates of money missing, money traced and money recovered changing daily, both investors and investigators are still trying to unravel numerous complex financial questions. Among them:
* Wymer’s attorneys say Wymer had up to $1.5 billion under management, although in his latest statement to the Securities and Exchange Commission, he claimed to manage $1.2 billion. * At least $21 million in money allegedly misappropriated from Iowa Trust accounts, an investment pool for Iowa cities, was traced to Shearson Lehman Bros. in New York. The funds were in accounts of four California entities. The brokerage filed papers in New York Thursday to “seek guidance from the court” to determine who is entitled to the funds.
* Carlson’s team of investigators, lawyers and accountants uncovered Wymer or ITM bank accounts that seem to be fictitious and accounts in the names of various ITM clients that the clients never knew existed.
* The city of La Quinta said its losses were about $11 million lower than indicated by the report. ITM records show that La Quinta had $14.2 million invested on Oct. 31, and records at Refco Securities in New York indicate that it had $101,000 instead. But La Quinta accounting supervisor John Risley said the city withdrew all but about $3 million in early December.
“This is still a substantial loss for us if we’re not able to get that,” Risley said. “I’m confident that we’re going to get the majority of that, though.”
But other cities were licking their wounds. Big Bear Lake was told it had $247 left from a $2.48-million investment, a loss of 19% of the city’s investment portfolio, City Treasurer Jeffrey D. Brunsdon said. Although there will be no immediate cash crunch, Brunsdon said, “it does cast a pall over the long-range capital outlook of the city.”
“We wanted them to invest the funds in short-term treasury bills, that’s all,” Brunsdon said. “Anything outside of those instructions was not permitted by us.”
Carlson, who indicated the possibility that Wymer’s companies may have to be declared bankrupt, will continue his work as receiver until a new hearing Jan. 10.
Statements to the Contrary
Ten California cities, one California utility and one Iowa town appear to have lost almost $70 million through investments managed by Newport Beach investment adviser Steven D. Wymer through Institutional Treasury Management Inc. of Irvine. The funds were invested in accounts at Refco Securities Inc. in New York, but Securities and Exchange Commission investigators discovered the following discrepancies between what Wymer told clients was in their accounts and how much was really there:
ITM Account Refco Account City Balance Balance Difference Beaumont $527,046 $22,439 $504,607 Big Bear Lake 2,481,207 247 2,480,960 Grand Terrace 728,609 285 728,324 Indio 4,353,800 7,953 4,345,847 La Quinta 14,242,226 100,849 14,141,377 Loma Linda 2,722,291 492 2,721,799 Marshalltown, Iowa 8,524,714 0 8,524,714 Orange 7,152,531 4,032 7,148,499 Palm Desert 12,262,551 750 12,261,801 Sanger 2,835,291 529 2,834,762 Torrance 6,214,928 93 6,214,835 Coachella Valley Joint Powers Authority 8,085,045 0 8,085,045 Total Difference: $69,962,570
Source: Report to federal court by receiver Robert E. Carlson Times staff writers Cristina Lee and Michael Flagg contributed to this report.
