Another Advisor Claiming To Be A Fiduciary Accused Of Defrauding Investors

Sunday, September 30, 2012 16:50
Another Advisor Claiming To Be A Fiduciary Accused Of Defrauding Investors

Tags: compliance | fiduciaries | fraud | RIA compliance | sec

Another RIA and its owner that were recently charged by the Securities and Exchange Commission with running a Ponzi scheme made the fiduciary obligation to clients the central focus of its marketing.

This Website Is For Financial Professionals Only


 Summit Wealth Management Inc., which claimed to manage more than $500 million and 2,200 client accounts, placed the following statement in the second of its home page in bold text: We acknowledge a fiduciary responsibility to you, the client, and as such, we pledge to place your needs first in all that we do.”

According to the SEC complaint, Summit’s founder and CEO, Angelo Alleca, created Summit Fund, a private fund, no later than 2004 and sold interests in Summit Fund to the advisory clients of Summit Wealth. Investors in Summit Fund were told that it would operate as a fund-of-funds. In or around 2006, although the investors in Summit Fund had been told that the fund would operate as a fund-of-funds, Alleca began actively trading securities in Summit Fund and incurred substantial losses.”

Alleca and RIA, the SEC says, concealed the losses from the investors. Around 2006 through 2008, Alleca started at least two additional private funds, called Asset Fund and Credit Fund, to raise capital so that he could cover up the losses that he had incurred in Summit Fund.
“Alleca's plan to cover up the losses did not work, however, in that the successive funds incurred further losses,” the SEC complaint says. “Summit Wealth issued such false account statements to approximately 200 of its advisory clients, and the Alleca-Controlled Funds issued such false account statements to the investors in the respective funds. Alleca caused some of the monies that were invested in Asset Fund and Credit Fund to be misappropriated in order to satisfy requests by certain investors in the Summit Fund for redemptions of some or all of their interests in the Summit Fund.”
Efforts to contact Alleca for his response to the allegations were unsuccessful.
While Summit’s website is no longer live on the Web, according to an archive of it website in November 2010, the firm has six offices, including locations in Beverly Hills, Naples, and Chicago as well as Atlanta. None of the firm’s other advisors, which include a CPA, CFP. NAPFA-Registered Adviser and other professionals, have been charged with any wrongdoing. (I know individuals connected to this firm and it's hard to believe they'd ever knowingly be involved in a fraud.)  
While almost unheard of a decade ago, fraud allegations against fee-only advisors claiming to be fiduciaries has become common in the last few years, as the government considers creating a new financial advice regulatory system and doing business as an RIA has become more popular.  



Comments (2)

Andy, good post, but I think the slant is off. It is true that more schemes have been discovered, but that is most likely due to rule changes than 'more RIA' firms.

After Madoff, 2 significant rules were adopted. First any RIA firm with custody of clients assets have to have surprise audits annually to account for the money by a CPA firm. The CPA firm is liable for its attestation.

The term qualified custodian is important essentially the RIA and custodian cannot be commonly owned as in the case with Madoff. Some 90+ percent of RIA firms use qualified custodians. That should be noted.

The second critical rule is that RIA firms must now disclose if it advises any private funds. While there is exemptions on private fund registration, the goal is to make a firm that claims to have extra assets are adhering to custody audits.

I personally see this as a positive reinforcement that some very common logic regulations work, not that RIA firms are simply unregulated.

brentb843 , October 01, 2012
Sorry for grammatical errors posted from smartphone
brentb843 , October 01, 2012

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