RIA Compliance Blog
On August 22, 2017, the Securities and Exchange Commission (“SEC”) filed a complaint in the United States District Court for the Central District of California against Jeremy Drake (“Drake”), an investment adviser. The complaint alleges that Drake lied to two clients, a high-profile professional athlete and his wife, regarding their annual management fees. The complaint also alleges that Drake used extensive measures to back up his deception, including sending “false and misleading emails” and “a number of fabricated documents.”
According to the SEC’s complaint, Drake’s alleged misconduct occurred when he was an investment adviser representative of HCR Wealth Advisers (“HCR”), a Los Angeles-based registered investment adviser. In September 2009, the clients entered into an “Investment Advisory Agreement” with HCR. The agreement, which was signed by Drake on behalf of HCR, provided that the clients would pay an annual management fee of 1% of the clients’ assets under management. Evidence shows that the clients paid a 1% management fee for the entire period when they were clients of HCR.
However, the complaint alleges that between November 2012 and July 2016, Drake defrauded the clients by telling them that they were paying much lower management fees than they really were. For example, in November 2012 Drake told the clients that they were paying an exclusive “VIP” rate ranging from 0.15% and 0.20% of their assets. In reality, however, they were paying a 1% management fee. In April 2013, Drake emailed the clients management fee reports that represented that the clients had received credits against certain fees from 2010, 2011, and 2012. However, these credits did not really exist. Finally, Drake stated in various emails and text messages that the clients’ fees were calculated at the “VIP” rate, when in fact they were not.
The SEC’s complaint also alleges that Drake fabricated a fake persona known as “Ron Stenson” in order to back up his deception. Evidence shows that he used a “Ron Stenson” email address to send “a number of false and misleading emails and attachments.” The SEC also alleges that Drake had an associate pose as “Ron Stenson” in telephone calls and verify Drake’s claims about the clients’ fees and credits. Altogether, the SEC alleges that Drake’s defrauding the clients caused them to pay approximately $1.2 million more than Drake claimed that they were paying and that Drake retained about $900,000 of those fees as compensation.
The SEC’s complaint requests a permanent injunction against Drake prohibiting him from further violating the Investment Advisers Act of 1940. The complaint also asks that the court order Drake to disgorge any ill-gotten gains, plus prejudgment interest. Finally, the complaint requests that Drake be required to pay civil money penalties.
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