WealthWise adviser allegedly got kickbacks for uging clients to invest millions in risky fund
San Luis Obispo Tribune
The Securities and Exchange Commission has charged a San Luis Obispo based investment adviser with fraud, according to a lawsuit filed in federal court in Los Angeles last week.
The SEC charges are based on the failure of WealthWise principal Jeffrey Forrest to disclose to his clients that he had a conflict of interest in recommending a high-risk hedge fund investment called the APEX Equity Options Fund.
The SEC says that Forrest encouraged clients to invest in APEX and did not disclose an agreement he had with the fund’s manager, Thompson Consulting Inc. of Salt Lake City, to give him money for directing clients into the APEX fund. Thompson Consulting gave WealthWise about $390,000 in illegal kickbacks, the SEC alleges.
APEX collapsed in August 2007 with massive losses after making undisclosed sub-prime and other speculative investments. But that came after Forrest had persuaded more than 60 of his clients to invest about $40 million in APEX from April 2005 to August 2007, according to SEC allegations.
The clients – among them a quadriplegic man, a retired nurse, a stay-at-home mom, a software consultant, a retired telecom technician and practicing physicians – had invested their savings, in some cases borrowing against the value of their homes, according to attorney Philip Aidikoff of Beverly Hills-based Aidikoff, Uhl & Bakhtiari, a law firm representing some WealthWise investors. The firm filed arbitration cases against Forrest with the Financial Industry Regulatory Authority starting last October.
Forrest could not be reached Monday for comment.
A financial adviser practicing for 30 years, Forrest established his firm Wealth Enhancement and Preservation, which provided financial planning and portfolio management services, in 1994; the business was registered with the SEC as WealthWise in 1997.
The company had six to 10 employees, 301 accounts and $68 million in assets under management, according to SEC filings in 2007. It also operated branch offices in Ogden, Utah; Westlake Village and San Diego, according to the SEC complaint.
Forrest told WealthWise clients that APEX would protect their principal while at the same time generate for them monthly interest of 3 percent – a total of 36 percent in annual interest – through a purportedly innovative options-trading method.
However, as a result of its risky trading strategies, the APEX fund collapsed in August 2007, causing Forrest’s clients to lose most, it not all, of their money, the SEC said in its complaint. Forty-seven WealthWise clients had invested from 25 percent to 100 percent of their portfolios in the fund.
In March, the Securities and Exchange Commission charged Thompson Consulting with investment fraud, saying the firm engaged in much riskier trading strategies than what was described to investors.
The SEC’s complaint formally charges WealthWise and Forrest with violating the antifraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.
The federal regulatory agency seeks an injunction, an accounting of the total amount of performance fees that WealthWise received from Thompson Consulting, discharge of those fees and undisclosed financial penalties.