Newport Beach investment adviser Steven D. Wymer was indicted Thursday on 30 counts of securities fraud, mail fraud, money laundering, obstruction of justice and other federal charges stemming from the alleged loss of more than $100 million of his clients' money.
Attorney Paul N. Murphy, who represents Wymer, said he "assumed" that the 43-year-old money manager will plead not guilty to all charges at his Monday arraignment.
Wymer, who operated two Irvine-based investment companies, faces up to 275 years in prison and more than $140 million in fines if convicted on all counts, Assistant U.S. Atty. Jean A. Kawahara said.
The indictment does not allege that Wymer misappropriated the money for his personal use. Nor does it specify what became of the money that was entrusted to Wymer--by dozens of cities, counties and other small public entities in Iowa, Colorado and California--to be invested in U.S. government securities.
Locally, Wymer's clients included Orange, a city that is believed to be out more than $7 million.
Wymer's attorneys have said Wymer lost the money through risky securities trading methods.
Prosecutors said Securities and Exchange Commission investigators have not accounted for all of the $100 million. But whether it turns out to be lost or stolen, the prosecutors said, Wymer is guilty of fraud, money laundering and lying to clients and the SEC.
"Whether he bought Porches or Ferraris or fancy houses or whatever, or lost the money trading, he still was making misrepresentations to clients," said Assistant U.S. Atty. James R. Asperger. "And if those misrepresentations can be proven, the fraud scheme can be proven."
Wymer has also been charged with securities fraud in a separate civil suit filed by the SEC. The receiver appointed by the court in that case has said that Wymer's two Irvine companies--Institutional Treasury Management and Denman & Co.--will probably file for bankruptcy protection shortly.
According to the criminal indictment, handed up by a Los Angeles grand jury Thursday, Wymer lulled and deceived clients of ITM and Denman into believing that their cash and securities were safe at third-party banks and brokerages, earning a high rate of return.
In fact, the indictment alleges, Wymer sent clients false monthly statements that overstated the amount of money in their accounts; had employees forge bogus brokerage confirmation documents to support the fake monthly performance statements, and stopped Refco Securities, a New York brokerage, from sending clients true statements.
In addition, the indictment alleges, Wymer had employees create fake trade confirmations in Refco's name and mailed them to clients. Refco is not charged with wrongdoing.
These "contrived trades" purported to show that Wymer had made profitable trades for the clients, when the trades were in fact either never made or made at different prices than he reported to the clients, prosecutors allege.
About $100 million that clients thought was in their accounts was missing before mid-October, when the SEC began asking questions about irregularities in accounts that Wymer maintained for Marshalltown, Iowa, the prosecutors said.
Once the SEC contacted him, Wymer engaged in a cover-up, shifting millions of dollars in a series of sophisticated transactions designed to mask the fraudulent activity and later to obstruct the SEC investigation, the indictment alleges.
"It was sort of a shell game, robbing Peter to pay Paul," Asperger said.
On or about Nov. 25, for example, Wymer allegedly defrauded Iowa Trust, an investment pool for Iowa government entities, of $65 million. He persuaded an Iowa Trust official to sell ITM $65 million in Treasury notes but never paid for them, then sold the notes and used the proceeds to cover up shortcomings in other clients' accounts, the indictment alleges.
Among Wymer's alleged victims were Orange, which appears to have lost $7.15 million, and Torrance, which was told by Wymer it had $6.2 million in a Refco account when its balance stood at $93, according to court documents.
Ten California cities and one state utility appear to have lost a total of about $45 million in public funds, prosecutors said. Among them are La Quinta, which lost $14.1 million; Big Bear Lake, which lost nearly $2.5 million; Indio, which lost $4.3 million, and Palm Desert, which lost $12.3 million.
Many city officials have expressed faith that they will eventually recover the money, through either criminal or civil prosecutions, but SEC officials have carefully avoided encouraging such hopes.
Wymer has been held without bail at the Metropolitan Detention Center in Los Angeles since his Dec. 17 arrest. A federal magistrate ruled that he poses both "an economic danger to his community" and a flight risk, rejecting defense arguments that Wymer had ample time to flee before his arrest, had he intended to do so.
Murphy said Wymer would ask again Monday for bail. Wymer's personal assets remain frozen by the court, making it impossible for him to pledge them to raise bail. At his last hearing, he offered his parents' home and his wife's two cars as security and proposed wearing an electronic surveillance bracelet to ensure that he did not flee.
Murphy declined to say what new conditions he might propose in a bid to gain Wymer's release. Prosecutors said they will continue to ask that he be held without bail.
Wymer's attorneys had also offered to have Wymer help the government account for the missing money but said he could not do so from jail.