The Securities and Exchange Commission has fined a former registered investment adviser $2.8 million and barred its owner, Jacob Cooper, from
the securities business.
Called a "Main Street Madoff” by former clients, Mr. Cooper allegedly deceived investors as part of a fraudulent kickback scheme that is estimated to have resulted in $44 million in losses.
Mr. Cooper, owner of Total Wealth Management in San Diego and one-time host of a popular radio show, “Uncommon Wealth,” allegedly placed most of the $100 million in assets under management at the firm with alternative investments or hedge funds that he controlled and then invested in entities with revenue sharing agreements,
the SEC said.
Mr. Cooper also failed to do necessary due diligence on the investments, according to the SEC. At least one of the investments turned out to be a Ponzi scheme and another in coffee shop franchises is believed to have been insolvent since inception, according to the order.
“Cooper's willful violations of the anti-fraud provisions were egregious,” wrote Brenda P. Murray, chief administrative law judge at the SEC, in her order. “Cooper misled investors, most of whom gave him discretionary authority to invest their retirement funds. Cooper was compensated handsomely for directing client funds into certain investments and never disclosed these conflict of interest arrangements to clients.”
From 2009 to 2014, Total Wealth Management made $1.3 million from the revenue sharing agreements, according to the order. From February 2010 to December 2014, Mr. Cooper was "well compensated" as well and received almost $2 million in total compensation, according to the order.
The $2.8 million fine includes $750,000 in civil penalties and $1.8 million in disgorgement. The SEC had originally sought $28 million, the maximum penalty, but Ms. Murray disagreed with the way it was calculated and considered the maximum penalty to be $750,000.
The SEC
first charged Mr. Cooper and Total Wealth in April 2014. The commission then
filed additional claims in February after Mr. Cooper attempted to use investor funds to pay for a settlement and attorneys' fees in the first case.
Mr. Cooper, who told the SEC that he is destitute, could not be reached for comment. An attorney who represented him in the case with the SEC, Vincent J. Brown, did not respond to calls seeking comment and a message left through his website.
Mr. Cooper denied the SEC's allegations, according to the order. He said that the risks were explained to the investors and the investors accepted those risks. Mr. Cooper also said that he performed adequate due diligence, including noting that the alleged Ponzi scheme investment had received a five-star rating from Morningstar Inc. He told the SEC that he even turned down some investments that did not meet his standards. In addition, he contended that his disclosures were adequate, according to what he was told by a compliance consultant he had hired.
A class action claim on behalf of investors is also pending in federal court in the Southern District of California. An attorney representing the investors, Maria Severson of Aguirre & Severson, said the allegations in the SEC's order resonated with much of what was in the investor complaint, and that it affirmed that Mr. Cooper was the owner and controlled the firm.
“The [administrative court] seems to find that Jacob Cooper was the mastermind,” she said. “He was a one-trick pony and the trick was to get him fees.”
Still, she said it was unlikely that the approximately two dozen investors represented in her case would be compensated for their losses because Mr. Cooper would be unable to pay.
Mr. Cooper also converted funds for personal use, according to the investors' complaint. In one instance, clients accused him of using funds to help operate a gun store, Dixie Gun Worx, which was
building a shooting range next to a shelter for victims of domestic violence. A manager at Dixie Gun Worx, who declined to give his name, said that it is no longer affiliated with Mr. Cooper.
One client, who has a military background and was a pilot in Afghanistan, invested his family's life savings of $600,000 with Mr. Cooper. He testified their investments are now worth just over $300,000. A retired elementary school teacher invested $75,000, which was completely lost, according to the SEC.
“We're happy the SEC has done this much, but these victims would like to see more,” Ms. Severson said.
The SEC named other affiliates of the firm, including Nathan McNamee, a former chief compliance officer, and Douglas Shoemaker, who the SEC said was a former owner of Total Wealth and a chief compliance officer before he left the firm in 2013. The chief compliance officer who replaced him, who was not named as a party, had a degree in graphic design from Dixie State University and did not hold any securities licenses, according to the SEC.
Those charges were stayed in light of settlement proceedings, according to the order.
Ms. Murray said that Mr. Cooper, who has
rebranded himself as a science fiction novelist, showed “a total lack of understanding or remorse,” which “indicates a high likelihood of future violations and necessitates an imposition of the broadest possible sanction.”
