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Ex-UBS adviser tricked clients, spent their money on prostitutes: SEC

Commission claims Kobayashi lived it up on client's life settlement investments

The SEC has slapped a former UBS adviser with fraud charges, alleging that he set up a fund for investing in life settlements but instead used investors’ dollars to hire prostitutes and pay down gambling debts.
The Securities and Exchange Commission charged Steven T. Kobayashi with fraud charges, ordering him to pay undisclosed civil penalties and disgorge all alleged ill-gotten gains. He is also facing related wire fraud and money-laundering charges by the U.S. Attorney’s Office in the Northern District of California.
The alleged fraud goes back to 2004, when Mr. Kobayashi was an adviser with UBS Financial Services Inc. Back then, a few of his clients were interested in investing in a pooled investment fund, and he suggested that they consider life settlements, the SEC claimed.
Once the investors agreed to go along, Mr. Kobayashi at the end of 2004 set up Life Settlement Partners LLC, which purchased policies and operated outside of the adviser’s work with UBS, the commission charged.
But according to the complaint, he did not notify UBS of his affiliation with Life Settlement Partners.
Though LSP had operated legitimately through 2005, buying 25 policies and receiving some of the proceeds as the policies matured, the SEC claims that Mr. Kobayashi began to siphon off the funds for his own use. Between February 2006 and September 2009, he allegedly pulled $1.4 million from LSP and set up a $3 million line of credit with the clients as guarantors.
Mr. Kobayashi used the allegedly misappropriated cash to cover gambling debts, buy luxury cars and hire prostitutes, the SEC claims. But the adviser blew through LSP’s liquid assets by the middle of 2007, the complaint states. Mr. Kobayashi became unable to pay down premiums on the policies, and many lapsed, according to the complaint. He also was unable to pay down the line of credit, the complaint states.
As the LSP investors came calling for their returns, Mr. Kobayashi turned to a handful of UBS customers, allegedly advising them to liquidate holdings in their accounts and to loan money to LSP. Those proceeds went toward paying disgruntled LSP investors, according to the SEC.
Mr. Kobayashi allegedly siphoned off $1.9 million from UBS customers by directing them to liquidate their accounts for supposed investments. The SEC claims that he also stole an additional $4 million from clients at UBS and LSP — including the $3 million line of credit.
Mr. Kobayashi resigned in Sept. 2009 after a client complained to the firm, claiming that the adviser had stolen “hundreds of thousands of dollars” from her and other clients’ accounts. She also claimed that Mr. Kobayashi had solicited loans from her and other customers, according to the SEC’s suit. UBS notified the SEC about Mr. Kobayashi’s misconduct.
Attempts to locate and contact Mr. Kobayashi were unsuccessful. UBS spokeswoman Allison Chin-Leong had no comment on the cases.