The Securities and Exchange Commission has sued Gary R. Headding and his former registered investment adviser firm, Envision Direct of Newport Beach, Calif., for defrauding two clients of at least $274,256.
The regulatory agency, which also alleges that Mr. Headding charged inflated advisory fees as high as 12.9% to three clients, filed the suit Monday in the U.S. District Court in the Central District of California.
Mr. Headding, who the SEC says deregistered Envision in 2009, immediately after being told by the regulator that it planned an examination of the firm, did not immediately return calls, made to his cell phone today. Spencer Bendell, a Los Angeles-based SEC lawyer working on the case, said he does not believe that Mr. Headding has retained a lawyer to help respond to the complaint.
The SEC alleges that Mr. Headding used tactics such as obtaining clients' passwords to transfer money from their online account at an unnamed brokerage firm to Envision, and then used the cash to fund his own individual retirement account and for other personal purposes.
One client was a college student who asked the adviser to help her manage $470,000 received from her mother's life insurance policy. The SEC alleges that he misappropriated more than $243,250 from the account between April 2007 and May 2008.
The complaint also said that Mr. Headding stole $31,000 from a friend of his family in two transactions that drained the client's account of 95% of its funds.
Contrary to client agreements that said Envision would charge between 0.5% and 2% of assets under management as an advisory fee, Envision and Mr. Headding also misappropriated $47,481 from three clients — including the college student and the family friend — by having the broker-dealer deduct advisory fees from their accounts ranging from 3.6% to 12.9% of assets under management.
The SEC's complaint does not name the broker-dealer, and the SEC's Mr. Bendell declined to comment. The complaint said that Mr. Headding ceased participating in the broker's custodial program in late 2007 but persuaded at least one client to provide him with her password for online access to her brokerage account.
Mr. Headding had discretion to make trades in his clients' accounts but not to “squander their money for his benefit,” the SEC said in a statement. He and Envision violated their fiduciary duty to both clients, it charged.
When the SEC's investment advisory examination staff arrived at Envision's doors on June 4 — three days after contacting Mr. Headding — he told them he had filed a Form ADV-W that morning to withdraw the firm's registration as an investment adviser.
Envision managed almost $40 million of funds for clients in 2007, according to the complaint. The SEC charged Envision with books-and-records violations for failing to preserve required records after closing down.
The suit comes amid an increasing number of fraud complaints alleging that advisers raided their clients' brokerage accounts, prompting brokerage firms to tighten procedures in response.
Earlier this year, a Florida investor sued TD Ameritrade Inc. for allegedly allowing a financial adviser to steal more than $2.3 million from her brokerage accounts to effectuate wire transfers from the account.
Charles Schwab Corp. has informed registered investment advisers that it has begun calling some of their clients to verify that they have authorized wire transfers.
