US adviser banned after $1m client funds fraud allegations
A US-based investment adviser at the centre of a $1m client funds fraud has been permanently barred obtaining a securities license.
Ed Matthes, a former independent contractor for Mutual of Omaha who resided in Oconomowoc in the US, has been permanently barred, according to a cease and desist order from The Wisconsin Department of Financial Institutions (DFI). The order could be followed up by criminal proceedings if allegations are proven.
In March, the Oconomowoc Police Department received about a dozen complaints against Matthes alleging fraud. The investigation was turned over to the Federal Bureau of Investigation.
According to the DFI, Matthes "misappropriated at least $1.03m from six insurance clients' Pacific Life annuities" from 2013 to 2018.
Matthes, a previously respected member of his local community - who was also the president of his Downtown Oconomowoc Business Association - is said to have instructed the clients to hand over rights to access client savings on their behalf so that he could move the funds.
He asked them to complete an authorization on their variable annuity contracts which would authorize him to "act on their behalf over telephone or other electronic instructions regarding withdrawals," the order stated.
"Matthes included his own personal checking account information on the clients' annuities contracts in place of the clients' accounts. Matthes would subsequently effect withdrawals into his own personal bank account via telephone or online without the clients' knowledge or consent."
Matthes was a registered representative of Mutual of Omaha Investor Services Inc. from March 2012 to March 25, 2019, and an investment adviser representative of Mutual of Omaha from February 2014 to March 25, 2019.
The order states that Matthes concealed the withdrawals by creating fictitious "Account Summary Forms" on Mutual of Omaha letterhead, detailing the account information and transaction history of their purported annuities and periodically provided them to clients.
Six years
For nearly six years, Matthes solicited many of his investment advisory clients and brokerage and insurance customers to liquidate preexisting securities and annuities holdings to invest in a "fixed" investment that he told them would provide an annual interest rate of up to 5% for a term of five years, according to the order.
Matthes told prospective investors the fixed investment was offered through Mutual of Omaha and was safer than their current investment positions and other prospective investment options.
"In fact, no such fixed investment ever existed," the order stated.
'Fictitious'
From June 2013 to March 2019, at least 20 people invested about $1.37m in the fictitious fixed investment offered by Matthes, the order said.
Matthes would then deposit the investors' checks into his own personal checking accounts. The order said Matthes used the money to pay off credit cards, home mortgage payments, child support, student loans for his son, home improvement and more than $80,000 on luxury items from Tiffany & Co.
To conceal the scheme, Matthes regularly sent fictitious account summaries on Mutual of Omaha letterhead to clients.
"The fictitious statements include fake account numbers which did not exist at Mutual of Omaha or any other broker-dealer or custodian," the order stated.
On or about March 22, 2019, Matthes entered into an agreement with the Financial Regulatory Authority (FINRA) to be permanently barred from associating with any member broker-dealer in any registered capacity.
According to the order, Matthes has the right to request a hearing to admit or deny the allegations, findings and conclusion. If Matthes does not request a hearing within 30 days after the date of service of the order, the summary order will become final.
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