Fiduciary Duty is NOT a Guarantee from Fraud

[DHK]

Here's yet another example (besides Madoff) of an IAR who ripped off his clients:

https://www.onwallstreet.com/news/u...-defrauds-pro-athlete-and-his-wife-of-12m-sec

Using fake persona, advisor defrauds pro athlete and his wife of $1.2M: SEC

Using a fake persona and misleading reports, an advisor pocketed nearly $1 million in fraudulent fees by secretly billing a professional athlete and his wife more than a promised discounted rate, the SEC alleges.

Jeremy Joseph Drake charged 100 basis points after promising his clients a cut-rate “VIP” plan of 15 to 20 basis points of their assets under management, investigators say.

Jeremy Joseph Drake defrauded a professional athlete and his wife of $1.2 million, says the SEC.
Jeremy Joseph Drake defrauded a professional athlete and his wife of $1.2 million, says the SEC.
The clients paid $1.2 million over the agreed-upon rate during a nearly four year period, while Drake collected $900,000 in incentive-based compensation, according to court documents filed this week by the SEC. The couple was not named in the regulator's complaint .

“These two clients trusted Drake to manage their investments, but all the while Drake was lying to them and then tried to conceal his lies by fabricating documents and even acting as an imposter to back up his claims,” Michele Wein Layne, director of the SEC’s Los Angeles regional office, said in a statement.

An attorney for Drake, who is currently registered with Trimsail Capital Management, a Los Angeles-based RIA formed earlier this year according to the SEC, did not respond to a request for comment. Trimsail Capital also did not respond.

CREATING A FAKE PERSONA
To conceal trumped up fees, Drake "went to elaborate lengths," sending his clients misleading fee reports and emails, and even creating a fake persona to buttress the scheme, according to the SEC.

After the couple voiced concerns over suspicious fees, Drake created “Ron Stenson,” a phony employee from Schwab, the custodian of the assets, to help corroborate his story, the SEC alleges. He also sent two fabricated letters on Schwab letterhead, regulators say.

Drake eventually admitted the lies to the athlete’s wife and warned her against reporting the misconduct, the regulator says.

“Upon discovery, the complaint alleges that Drake admitted to one of the clients that he had been lying and warned her that reporting his misconduct could result in bad publicity for her husband,” the SEC says.

‘REASONABLY CONCLUDE’ MISCONDUCT
Formerly of Los Angeles-based HCR Wealth Advisors, Drake ultimately held as much as $35 million of the clients’ assets and was the clients’ sole contact at the firm, the SEC says.

Drake was eventually discharged from HCR Wealth in June 2016, per BrokerCheck records. HCR Wealth could not be reached for comment.

“HCR commenced an investigation after receiving notice of a client (managed by Mr. Drake) inquiry regarding a duplicate monthly Schwab account statement,” according to a statement on file with BrokerCheck. HCR's ongoing investigation is “sufficient to reasonably conclude that Mr. Drake was involved in misconduct and falsifying documents with respect to the client's accounts,” per BrokerCheck.

“The hardest job I have is getting them to be normal,” Drake said about servicing athlete clients in a 2016 article in the L.A. Times. “It’s tough because these guys are risk-takers.”

 

[walthamny]

Well he charged a 75% commission. He should have set up his RIA as Fee only and charge a flat fee of 225K a year for 4 years to be DOL compliant.

This one went further than most people. He impersonated a Charles Schwab employee so I hope he does jail time. If he was a Finra rep, he could have walked away with a 60 day suspension.

After jail, he can get his local radio show as a financial entertainer and continue his scams.

 

[xrac]

No amount of government regulation will ever prevent this type of thing. You cannot make a silk person out of a sow's ear and rules, regulations, and government oversight will not make a dishonest person honest. All the SEC rules do is generate more paper work, more government jobs, and make it harder for the average financial individual to do their job.

 

[pfg1]

I have to wonder when I read these type articles... when is enough $ enough? Or what makes it not enough that you have to resort to that?

To me, having a client with that type of $... obviously if he gave them the fee rate he said, he'd still make damn good $, he'd most likely have a long term client, and would and potentially get solid referrals from them. Moron.

 

[VolAgent]

I have to wonder when I read these type articles... when is enough $ enough? Or what makes it not enough that you have to resort to that?

To me, having a client with that type of $... obviously if he gave them the fee rate he said, he'd still make damn good $, he'd most likely have a long term client, and would and potentially get solid referrals from them. Moron.

It all goes back to greed and keeping up with the Joneses.

I almost don't want to say it because I fear the political talk that will follow...

But this is the same mentality that caused Hilary to say they were broke after Bill left office as President. To them, they were flat broke. To the average American, they were rich.

People tend to evaluate their position subjectively, by what they see around them. This is the same danger that social media poses. Most people post the best parts of their life, so you think everyone is buying new cars, eating at fancy restaurants, taking nice vacations, etc. You don't realize all the mundane BS they go through like everyone else. The time they had to scrimp to buy new shoes, repair the car, etc.

 

[pfg1]

It all goes back to greed and keeping up with the Joneses.

I almost don't want to say it because I fear the political talk that will follow...

But this is the same mentality that caused Hilary to say they were broke after Bill left office as President. To them, they were flat broke. To the average American, they were rich.

People tend to evaluate their position subjectively, by what they see around them. This is the same danger that social media poses. Most people post the best parts of their life, so you think everyone is buying new cars, eating at fancy restaurants, taking nice vacations, etc. You don't realize all the mundane BS they go through like everyone else. The time they had to scrimp to buy new shoes, repair the car, etc.

Yeah, I hear ya. Social media - while it has its good parts, is a huge problem in today's society. I see it with the kids - it can be consuming. Just walk through any store (or anywhere people are) and watch how many kids are snap-chatting.
And Facebook... I call it FAKEbook. I know many folks that post about how great life is...nothing but roses, their real lives are just like everyone else or many times - worse. They just try to compensate online. Its a joke really.

I guess I could see that possibly happening in this business, but honestly I can't understand that mentality personally.

 

[VolAgent]

Yeah, I hear ya. Social media - while it has its good parts, is a huge problem in today's society. I see it with the kids - it can be consuming. Just walk through any store (or anywhere people are) and watch how many kids are snap-chatting.
And Facebook... I call it FAKEbook. I know many folks that post about how great life is...nothing but roses, their real lives are just like everyone else or many times - worse. They just try to compensate online. Its a joke really.

I guess I could see that possibly happening in this business, but honestly I can't understand that mentality personally.

It has always been happening. Why do you think life agents can't accept cash or checks payable to the agent/agency? Social media has just made it worse. Instead of comparing yourself to the family down the street, you can compare yourself to anyone in town or across the country.

It happens on here too. Comments like, "I wouldn't get out of bed for $50,000 a year." "I want to make good money, $100,000 or more." This is completely clueless that $50,000 a year is just below the median household income across the US. So that means you are making more than most households, and that median is distorted by high income cities. I would say the vast majority of agents on this forum are from the South or Midwest with a fair number from Florida, California and New York. So $50,000 a year in the South or Midwest is great money.

When people are greedy, they find a way to sate it. Some legally and ethically, some illegally and unethically.

And I'm as guilty of it as anyone else. I see stuff on FB or what people post here and go, "Man that is awesome, wish it was me." But then I remind myself, I am doing vastly better than most of America and most agents. And at the end of the day, no one pays my bills but me. Which is why I try to avoid any topic of how much someone makes or how much I make.

 

[toolbelt]

Yeah, I hear ya. Social media - while it has its good parts, is a huge problem in today's society. I see it with the kids - it can be consuming. Just walk through any store (or anywhere people are) and watch how many kids are snap-chatting.
And Facebook... I call it FAKEbook. I know many folks that post about how great life is...nothing but roses, their real lives are just like everyone else or many times - worse. They just try to compensate online. Its a joke really.

I guess I could see that possibly happening in this business, but honestly I can't understand that mentality personally.

Faking it until you make it is standard operating procedure in financial MLMs.