The Securities and Exchange Commission has accused a broker-dealer executive and his firm of hoodwinking clients into investing in allegedly phony private funds, making off with at least $780,000.
The SEC brought federal charges on May 1 in Massachusetts against Arnett L. Waters of Milton, Mass., broker-dealer A.L. Waters Capital and advisory firm Moneta Management. Mr. Milton is the chief executive of the broker-dealer and owner of Moneta.
Janet Lee Waters, Mr. Waters' wife, and Port Huron Partners, a firm controlled by Mr. Waters that purportedly did business in rare coins and bullion, also were named as relief defendants in the case. Ms. Waters was the compliance officer of Waters Capital and a partner with Moneta.
According to the SEC, Mr. Waters in 2009 allegedly created phony private investment funds — dubbed Port Huron Partners LP and Port Huron Partners II LP — and offered investors a chance to participate through Waters Capital's website.
The complaint says investors received marketing materials, including private-placement-offering memoranda and portfolio statements. Some of the marketing materials depicted Port Huron I as dealing in precious metals, coins, energy funds and “securities focused on precious metals,” according to the commission. But an offering memo given to an investor described the fund as “a specialized
hedge fund organized to trade in global, preferred stocks, corporate and government bonds,” the SEC said.
Other inconsistencies turned, as well, according to SEC investigators. Waters Capital allegedly claimed that the Port Huron Partners Fund had $180 million in assets under management as of January 2010 — but the fund's account at Charles Schwab & Co. Inc. was closed in March 2009. The account never held more than $52,000 between November 2007 and the month it was closed, investigators said.
Mr. Waters allegedly told the SEC that nobody invested in Port Huron Partners. The complaint, however, says at least eight clients placed more than $780,000 into the investments. One of those clients: a church that invested $500,000, just days before the B-D's executive told the SEC that Port Huron I’s investment portfolio was merely a model portfolio.
According to the commission, bank statements showed investors' dollars being used to pay the Waters' personal and business expenses. Some of those outlays included payments on a horse farm, an equine veterinarian, restaurants and other uses, according to the complaint. The SEC said that of the $782,500 the Waters raised, only $334,785 remains in bank accounts tied to Port Huron and Moneta. The SEC complaint does not name the church.
Further, the SEC alleged that Mr. Waters made misrepresentations to the commission and the
Financial Industry Regulatory Authority Inc., falsely depicting Moneta and Port Huron as “non-investment-related holding companies dealing in coins and bullion.”
A U.S. District Court judge agreed to freeze assets belonging to the Waterses, as well as those held at Port Huron, Moneta and Waters Capital. The SEC seeks disgorgement of the ill-gotten gains, plus interest and civil monetary penalties.
Mr. Waters referred questions to his attorney Joseph F. Savage, a partner with Goodwin Procter. Mr. Savage did not immediately return a call seeking comment.
