Opinion
JOHN B. BULGOZDY, DAVID J. VANHAVERMAAT, CAROL LALLY, Attorneys for Plaintiff, Securities and Exchange Commission, Michele Wein Layne, Regional Director, Lorraine B. Echavarria, Associate Regional Director, John W. Berry, Regional Trial Counsel, Los Angeles, California 90071.
STIPULATION AND TEMPORARY RESTRAINING ORDER AND ORDERS (1) FREEZING ASSETS; (2) PROHIBITING THE DESTRUCTION OF DOCUMENTS; (3) GRANTING EXPEDITED DISCOVERY; (4) REQUIRING ACCOUNTINGS; (5) APPOINTING A TEMPORARY RECEIVER, AND ORDER TO SHOW CAUSE RE PRELIMINARY INJUNCTION AND APPOINTMENT OF A PERMANENT RECEIVER
CYNTHIA BASHANT, District Judge.
This matter came before the Court upon the Application of Plaintiff Securities and Exchange Commission ("SEC") for a Temporary Restraining Order and Orders (1) Freezing Assets; (2) Prohibiting the Destruction of Documents; (3) Granting Expedited Discovery; (4) Requiring Accountings; and (5) Appointing a Temporary Receiver, and Order to Show Cause Re Preliminary Injunction and Appointment of a Permanent Receiver (the "TRO Application"). ECF 3.
Defendants Total Wealth Management, Inc. and Jacob Keith Cooper, having been provided with notice of this action, and without admitting or denying the allegations in the Complaint, have agreed to stipulate to the entry of this Temporary Restraining Order and other relief ("Order"). ECF 4. Accordingly, the Court GRANTS the stipulated temporary restraining order (ECF 4).
The Court, having considered the SEC's Complaint, the TRO Application, the supporting Memorandum of Points and Authorities, the supporting declarations and exhibits, and the other evidence and argument presented to the Court, and the stipulation and consent of Defendants Total Wealth Management, Inc. and Jacob Keith Cooper, finds that:
A. This Court has jurisdiction over the parties to, and the subject matter of, this action.
B. The SEC has made a sufficient and proper showing in support of the relief granted herein, as required by Section 209(d) of the Investment Advisers Act of 1940 ("Advisers Act"), 15 U.S.C. § 80b-9(d), by evidence establishing a prima facie case and reasonable likelihood that Defendants Total Wealth Management, Inc. ("Total Wealth") and Jacob Keith Cooper ("Cooper") have engaged in, are engaging in, are about to engage in, and will continue to engage in unless restrained transactions, acts, practices and courses of business that constitute violations of Sections 206(1), (2), and (4) of the Advisers Act, 15 U.S.C. §§ 80b-6(1), (2), and (4), and Rule 206(4)-8 thereunder, 17 C.F.R. § 275.206(4)-8.
C. Good cause exists to believe that, unless restrained and enjoined by order of this Court, Defendants will dissipate, conceal, or transfer assets which could be the subject to an order directing disgorgement or the payment of civil money penalties in this action. It is appropriate for the Court to issue this Temporary Restraining Order ex parte so that prompt service on appropriate financial institutions can be made, thus preventing the dissipation of assets.
D. Good cause exists to believe that, unless restrained and enjoined by order of this Court, Defendants may alter or destroy documents relevant to this action.
E. Good cause exists to believe that expedited discovery is necessary.
I.
IT IS HEREBY ORDERED that the SEC's TRO Application is GRANTED.
II.
IT IS FURTHER ORDERED that Defendants Total Wealth Management, Inc. and Jacob Keith Cooper, and their officers, agents, servants, employees, attorneys, subsidiaries and affiliates, and those persons in active concert or participation with any of them who receive actual notice of this Order, by personal service or otherwise, and each of them, be and hereby are temporarily restrained and enjoined from, directly or indirectly, by the use of any means or instruments of transportation or communication in interstate commerce or by the use of the mails:
A. with scienter, employing devices, schemes or artifices to defraud clients or prospective clients; or
B. engaging in transactions, practices, or courses of business which operated as a fraud or deceit upon clients or prospective clients;
in violation of Sections 206(1) and (2) of the Advisers Act, 15 U.S.C. §§ 80b-6(1) and (2).
III.
IT IS FURTHER ORDERED that Defendants Total Wealth Management, Inc. and Jacob Keith Cooper, and their officers, agents, servants, employees, attorneys, subsidiaries and affiliates, and those persons in active concert or participation with any of them, who receive actual notice of this Order, by personal service or otherwise, and each of them, be and hereby are temporarily restrained and enjoined from, directly or indirectly, while acting as an investment adviser to a pooled investment vehicle, by the use of any means or instrumentality of interstate commerce,
A. making untrue statements of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which there were made, not misleading, to any investor or prospective investor in the pooled investment vehicle; or
B. engaging in acts, practices, or courses of business that are fraudulent, deceptive, or manipulative with respect to any investor or prospective investor in the pooled investment vehicle;
in violation of Section 206(4) of the Advisers Act, 15 U.S.C. § 80b-6(4), and Rule 206(4)-8 thereunder, 17 C.F.R. § 275.206(4)-8.
IV.
IT IS FURTHER ORDERED that, except as otherwise ordered by this Court, Defendants Total Wealth Management, Inc. and Jacob Keith Cooper, and their officers, agents, servants, employees, attorneys, subsidiaries and affiliates, and those persons in active concert with them, who receive actual notice of this Order, by personal service or otherwise, and each of them, be and hereby are temporarily restrained and enjoined from, directly or indirectly, transferring, assigning, selling, hypothecating, changing, wasting, dissipating, converting, concealing, encumbering, or otherwise disposing of, in any manner, any funds, assets, securities, claims or other real or personal property, including any notes or deeds of trust or other interest in real property, wherever located, of any one of the Defendants, or their subsidiaries or affiliates, owned by, controlled by, managed by or in the possession or custody of any of them and from transferring, encumbering dissipating, incurring charges or cash advances on any debit or credit card of the credit arrangement of any one of the Defendants, or their subsidiaries and affiliates.
V.
IT IS FURTHER ORDERED that, except as otherwise ordered by this Court, an immediate freeze shall be placed on all monies and assets (with an allowance for necessary and reasonable living expenses to be granted only upon good cause shown by application to the Court with notice to and an opportunity for the SEC to be heard) in all accounts at any bank, financial institution or brokerage firm, or third-payment payment processor, all certificates of deposit, and other funds or assets, held in the name of, for the benefit of, or over which account authority is held by Defendants Total Wealth Management, Inc. and Jacob Keith Cooper, including but not limited to the accounts listed below:
Account Name Bank Name Account Number Total Wealth Management, Inc. Wells Fargo xxxxx-2232 Total Wealth Management, Inc. Wells Fargo xxxxx-6979 Total Wealth Management, Inc. Wells Fargo xxxxx-3195 Total Wealth Management, Inc. Wells Fargo xxxxx-7027 Total Wealth Management, Inc. Navy Federal Credit Union xxxxx-6443 Total Wealth Management, Inc. Navy Federal Credit Union xxxxx-2808 Jacob Keith Cooper Navy Federal Credit Union xxxxx-7712 Joint owner - Kristen F. Cooper Jacob Keith Cooper Navy Federal Credit Union xxxxx-7100 Joint owner - Kristen F. Cooper Jacob Keith Cooper Navy Federal Credit Union xxxxx-3700 Joint owner - Kristen F. Cooper Pinnacle Wealth Group, Inc. Wells Fargo xxxxx-6961 Pinnacle Wealth Group, Inc. Wells Fargo xxxxx-2544 Pinnacle Wealth Group, Inc. Navy Federal Credit Union xxxxx-0541 Pinnacle Wealth Group, Inc. Navy Federal Credit Union xxxxx-5757 Altus Capital Management, LLC Wells Fargo xxxxx-9643 Altus Capital Management, LLC Wells Fargo xxxxx-6716
Altus Capital Opportunity Fund, LP Wells Fargo xxxxx-9076 Altus Capital Opportunity Fund, LP Wells Fargo xxxxx-5066 Altus Capital Opportunity Fund, LP Wells Fargo xxxxx-2285 Altus Capital Opportunity Fund, LP Wells Fargo xxxxx-7823 Altus Conservative Portfolio Series Wells Fargo xxxxx-7001 Altus Conservative Portfolio Series Wells Fargo xxxxx-6146 Altus Conservative Portfolio Series Wells Fargo xxxxx-2254 Altus Growth Portfolio Series Wells Fargo xxxxx-7035 Altus Growth Portfolio Series Wells Fargo xxxxx-6161 Altus Income Portfolio Series Wells Fargo xxxxx-7019 Altus Income Portfolio Series Wells Fargo xxxxx-6310 Altus Income Portfolio Series Wells Fargo xxxxx-6120 Altus Moderate Growth Portfolio Wells Fargo xxxxx-6995 Altus Moderate Growth Portfolio Wells Fargo xxxxx-6138 Altus Moderate Growth Portfolio Wells Fargo xxxxx-2270 Altus Moderate Growth Portfolio Wells Fargo xxxxx-0008 Altus Moderate Portfolio Series Wells Fargo xxxxx-7027 Altus Moderate Portfolio Series Wells Fargo xxxxx-7540 Altus Moderate Portfolio Series Wells Fargo xxxxx-2296 Altus Moderate Portfolio Series Wells Fargo xxxxx-6153
Any bank, financial institution or brokerage firm, or third-party payment processor holding such monies and assets described above shall hold and retain within their control and prohibit the withdrawal, removal, transfer or other disposal of any such funds or other assets except as otherwise ordered by this Court.
VI.
IT IS FURTHER ORDERED that, within ten days from the date of this Order, Defendants Total Wealth Management, Inc. and Jacob Keith Cooper, any bank, financial institution or brokerage firm, and each of them, shall transfer to the registry of this Court assets, funds and other property held in foreign locations in the name of any Defendant, or for the benefit or under the direct or indirect control of any of them, or over which any of them exercises control or signatory authority, that is equal to the value of all funds transferred by U.S. investors, whether by wire transfer, third-party payment processor or otherwise, at the direction of either Defendants or any of their agents, representatives or accredited advisors.
VII.
IT IS FURTHER ORDERED that, except as otherwise ordered by this Court, each of the Defendants Total Wealth Management, Inc. and Jacob Keith Cooper, and their officers, agents, servants, employees, attorneys, subsidiaries and affiliates, and those persons in active concert or participation with any of them, who receive actual notice of this Order, by personal service or otherwise, and each of them, be and hereby are temporarily restrained and enjoined from, directly or indirectly: destroying, mutilating, concealing, transferring, altering, or otherwise disposing of, in any manner, any documents, which includes all books, records, computer programs, computer files, computer printouts, contracts, emails, correspondence, memoranda, brochures, or any other documents of any kind in their possession, custody or control, however created, produced, or stored (manually, mechanically, electronically, or otherwise), pertaining in any manner to Defendants Total Wealth Management, Inc. and Jacob Keith Cooper.
VIII.
IT IS FURTHER ORDERED that, Defendants Total Wealth Management, Inc. and Jacob Keith Cooper, within five days of the issuance of this Order, shall prepare and deliver to the SEC a detailed and complete schedule of all of their personal assets, including all real and personal property exceeding $5,000 in value, and all bank, securities, and other accounts identified by institution, branch address and account number. The accounting shall include a description of the sources of all such assets. Such accounting shall be filed with the Court and a copy shall be delivered to the SEC to the attention of David J. Van Havermaat, Trial Counsel. After completion of the accounting, each of the Defendants shall produce to the SEC at a time agreeable to the SEC, all books, records and other documents supporting or underlying their accounting.
IX.
IT IS FURTHER ORDERED that any person who receives actual notice of this Order by personal service or otherwise, and who holds, possesses or controls assets exceeding $5,000 for the account or benefit of any one of the Defendants, shall within 5 days of receiving actual notice of this Order provide counsel for the SEC with a written statement identifying all such assets, the value of such assets, or best approximation thereof, and any account numbers or account names in which the assets are held.
X.
IT IS FURTHER ORDERED that the SEC's application for expedited discovery concerning Defendants, their assets and activities, is granted and that, commencing with the time and date of this Order, in lieu of the time periods, notice provisions, and other requirements of Rules 26, 30, 33, 34, 36, and 45 of the Federal Rules of Civil Procedure and the corresponding Local Rules of this Court, discovery shall proceed as follows:
(A) Pursuant to Rule 30(a) of the Federal Rules of Civil Procedure, the SEC may take depositions upon oral examination on two days' notice of any such deposition. Depositions may be taken Monday through Saturday. As to the Defendants, and their agents, servants, promoters, employees, brokers, associates, and any person who transferred money to or received money from the bank accounts identified above, the SEC may depose such witnesses after serving a deposition notice by facsimile, hand or overnight courier upon such individuals, and without serving a subpoena on such witness. Depositions that have not been signed by the witness may be used for purposes of the hearing on the SEC's application for preliminary injunction.
(B) Pursuant to Rule 33(a) of the Federal Rules of Civil Procedure, each Defendant shall answer the SEC's interrogatories within three days of service of such interrogatories upon Defendant.
(C) Pursuant to Rule 34(b) of the Federal Rules of Civil Procedure, each Defendant shall produce all documents requested by the SEC within three days of service of such request, with production of the documents made to David J. Van Havermaat, U.S. Securities and Exchange Commission, 444 S. Flower St., Suite 900, Los Angeles, California 90071, or such person or place as counsel for the SEC may direct in writing.
(D) Pursuant to Rule 36(a) of the Federal Rules of Civil Procedure, each Defendant shall respond to the SEC's requests for admissions within three days of such requests; and
(E) All written responses to the SEC's requests for discovery under the Federal Rules of Civil Procedure shall be delivered by hand or overnight courier to the SEC to the attention of David J. Van Havermaat, U.S. Securities and Exchange Commission, 444 S. Flower St., Suite 900, Los Angeles, California 90071, or such other place and person as counsel for the SEC may direct in writing.
XI.
IT IS FURTHER ORDERED that Kristen A. Janulewicz is appointed as temporary receiver of Defendant Total Wealth Management, Inc., and its subsidiaries and affiliates, including but not limited to Altus Capital Management, LLC, with full powers of an equity receiver, including, but not limited to, full power over all funds, assets, collateral, premises (whether owned, leased, occupied, or otherwise controlled), choses in action, books, records, papers and other property belonging to, being managed by or in the possession of or control of Defendant Total Wealth Management, Inc., and its subsidiaries and affiliates, and that such receiver is immediately authorized, empowered and directed:
A. to have access to and to collect and take custody, control, possession, and charge of all funds, assets, collateral, premises (whether owned, leased, occupied, or otherwise controlled), choses in action, books, records, papers and other real or personal property, wherever located, of or managed by Defendant Total Wealth Management, Inc., and its subsidiaries and affiliates, with full power to sue, foreclose, marshal, collect, receive, and take into possession all such property (including access to and taking custody, control, and possession of all such Defendant Total Wealth Management, Inc. property, and that of their subsidiaries and affiliates);
B. to have control of, and to be added as the sole authorized signatory for, all accounts of the entities in receivership, including all accounts at any bank, title company, escrow agent, financial institution or brokerage firm (including any futures commission merchant) which has possession, custody or control of any assets or funds of Defendant Total Wealth Management, Inc., and its subsidiaries and affiliates, or which maintains accounts over which Defendant Total Wealth Management, Inc., and its subsidiaries and affiliates, and/or any of its employees or agents have signatory authority;
C. to conduct such investigation and discovery as may be necessary to locate and account for all of the assets of or managed by Defendant Total Wealth Management, Inc., and its subsidiaries and affiliates, and to engage and employ attorneys, accountants and other persons to assist in such investigation and discovery;
D. to take such action as is necessary and appropriate to preserve and take control of and to prevent the dissipation, concealment, or disposition of any assets of or managed by Defendant Total Wealth Management, Inc., and its subsidiaries and affiliates;
E. to make an accounting, as soon as practicable, to this Court and the SEC of the assets and financial condition of Defendant Total Wealth Management, Inc., and to file the accounting with the Court and deliver copies thereof to all parties;
F. to make such payments and disbursements from the funds and assets taken into custody, control, and possession or thereafter received by him or her, and to incur, or authorize the making of, such agreements as may be necessary and advisable in discharging his or her duties as temporary receiver;
G. to employ attorneys, accountants, and others to investigate and, where appropriate, to institute, pursue, and prosecute all claims and causes of action of whatever kind and nature which may now or hereafter exist as a result of the activities of present or past employees or agents of Defendant Total Wealth Management, Inc., and its subsidiaries and affiliates; and
H. to have access to and monitor all mail, electronic mail, and video phone of the entities in receivership in order to review such mail, electronic mail, and video phone which he or she deems relates to their business and the discharging of his or her duties as temporary receiver.
XII.
IT IS FURTHER ORDERED that Defendant Total Wealth Management, Inc., its subsidiaries and affiliates, including all of the other entities in receivership, and their officers, agents, servants, employees and attorneys, and any other persons who are in custody, possession or control of any assets, collateral, books, records, papers or other property of or managed by any of the entities in receivership, shall forthwith give access to and control of such property to the temporary receiver.
XIII.
IT IS FURTHER ORDERED that no officer, agent, servant, employee or attorney of Defendant Total Wealth Management, Inc. shall take any action or purport to take any action, in the name of or on behalf of Defendant Total Wealth Management, Inc., without the written consent of the temporary receiver or order of this Court.
XIV.
IT IS FURTHER ORDERED that, except by leave of this Court, during the pendency of this receivership, all clients, investors, trust beneficiaries, note holders, creditors, claimants, lessors and all other persons or entities seeking relief of any kind, in law or in equity, from Defendant Total Wealth Management, Inc., or its subsidiaries or affiliates, and all persons acting on behalf of any such investor, trust beneficiary, note holder, creditor, claimant, lessor, consultant group or other person, including sheriffs, marshals, servants, agents, employees and attorneys, are hereby restrained and enjoined from, directly or indirectly, with respect to these persons and entities:
A. commencing, prosecuting, continuing or enforcing any suit or proceeding (other than the present action by the SEC or any other action by the government) against any of them;
B. using self-help or executing or issuing or causing the execution or issuance of any court attachment, subpoena, replevin, execution or other process for the purpose of impounding or taking possession of or interfering with or creating or enforcing a lien upon any property or property interests owned by or in the possession of Defendant Total Wealth Management, Inc.; and
C. doing any act or thing whatsoever to interfere with taking control, possession or management by the temporary receiver appointed hereunder of the property and assets owned, controlled or managed by or in the possession of Defendant Total Wealth Management, Inc., or in any way to interfere with or harass the temporary receiver or his or her attorneys, accountants, employees, or agents or to interfere in any manner with the discharge of the temporary receiver's duties and responsibilities hereunder.
XV.
IT IS FURTHER ORDERED that Defendant Total Wealth Management, Inc., and its subsidiaries, affiliates, officers, agents, servants, employees and attorneys, shall cooperate with and assist the temporary receiver and shall take no action, directly or indirectly, to hinder, obstruct, or otherwise interfere with the temporary receiver or his or her attorneys, accountants, employees or agents, in the conduct of the temporary receiver's duties or to interfere in any manner, directly or indirectly, with the custody, possession, management, or control by the temporary receiver of the funds, assets, collateral, premises, and choses in action described above.
XVI.
IT IS FURTHER ORDERED that Defendant Total Wealth Management, Inc., and its subsidiaries and affiliates, shall pay the costs, fees and expenses of the temporary receiver incurred in connection with the performance of his or her duties described in this Order, including the costs and expenses of those persons who may be engaged or employed by the temporary receiver to assist him or her in carrying out his or her duties and obligations. All applications for costs, fees, and expenses for services rendered in connection with the receivership other than routine and necessary business expenses in conducting the receivership, such as salaries, rent, and any and all other reasonable operating expenses, shall be made by application setting forth in reasonable detail the nature of the services and shall be heard by the Court.
XVII.
IT IS FURTHER ORDERED that no bond shall be required in connection with the appointment of the temporary receiver. Except for an act of gross negligence, the temporary receiver shall not be liable for any loss or damage incurred by any of the defendants, their officers, agents, servants, employees and attorneys or any other person, by reason of any act performed or omitted to be performed by the temporary receiver in connection with the discharge of his or her duties and responsibilities.
XVIII.
IT IS FURTHER ORDERED that representatives of the SEC and any other government agency are authorized to have continuing access to inspect or copy any or all of the corporate books and records and other documents of Defendant Total Wealth Management, Inc., and the other entities in receivership, and continuing access to inspect their funds, property, assets and collateral, wherever located.
XIX.
IT IS FURTHER ORDERED that this Temporary Restraining Order shall expire at 1:30 p.m. on February 13, 2015 unless for good cause shown it is extended or the parties against whom it is directed consent that it may be extended for a longer period.
XX.
IT IS FURTHER ORDERED that at 8:30 a.m. on February 13, 2015, or as soon thereafter as the parties may be heard, the Defendants, and each of them, shall appear before the Honorable Cynthia Bashant, Judge of the United States District Court for the Southern District of California, to show cause, if there be any, why a preliminary injunction should not be granted. Any declarations, affidavits, points and authorities, or other submissions in support of, or in opposition to, the issuance of such an Order shall be filed with the Court and delivered to the David J. Van Havermaat, U.S. Securities and Exchange Commission, 444 S. Flower St., Suite 900, Los Angeles, California 90071, and the offices of the Defendants or their attorneys no later than 5:00 p.m. on February 7, 2015. Any reply papers shall be filed with the Court and delivered to opposing counsel no later than 5:00 p.m. on February 11, 2015.
XXI.
IT IS FURTHER ORDERED that this Court shall retain jurisdiction over this action for the purpose of implementing and carrying out the terms of all orders and decrees which may be entered herein and to entertain any suitable application or motion for additional relief within the jurisdiction of this Court.
XXII.
In light of the parties' stipulation to a temporary restraining order (ECF 4) the Court TERMINATES as MOOT Defendant's ex parte application (ECF 3).
IT IS SO ORDERED.
COMPLAINT
Plaintiff Securities and Exchange Commission (the "SEC" or "Commission") alleges as follows:
JURISDICTION AND VENUE
1. This Court has jurisdiction over this action pursuant to Sections 209(d), 209(e)(1), and 214 of the Investment Advisers Act of 1940 ("Advisers Act"), 15 U.S.C. §§ 80b-9(d), 80b-9(e)(1), & 80b-14. Defendants have, directly or indirectly, made use of the means or instrumentalities of interstate commerce, of the mails, or of the facilities of a national securities exchange in connection with the transactions, acts, practices and courses of business alleged in this Complaint.
2. Venue is proper in this district pursuant to Section 214 of the Advisers Act, 15 U.S.C. § 80b-14, because certain of the transactions, acts, practices and courses of conduct constituting violations of the federal securities laws occurred within this district. In addition, venue is proper in this district because Defendant Total Wealth Management, Inc. ("Total Wealth") is headquartered in this district.
SUMMARY
3. This case involves ongoing fraud and breach of fiduciary duty by Total Wealth, a San Diego-based investment adviser that runs a series of unregistered hedge funds, and Jacob Cooper, Total Wealth's founder, sole owner, and chief executive officer. After being charged by the SEC in an administrative proceeding with violations of the federal securities laws, including fraud, Cooper and Total Wealth took their clients' funds to pay a proposed settlement with the SEC. In addition, Cooper and Total Wealth are continuing to take substantial funds from client accounts, under the guise of "administrative fees, " without providing any meaningful explanation or accounting to clients. At the same time, Total Wealth and Cooper have advised clients that Total Wealth is winding down its largest fund, the Altus Fund (from which the investor money was misappropriated), that some of the investments are impaired, that withdrawals are restricted, and that investor funds will be distributed slowly over an extended period because the fund's holdings are illiquid.
4. Cooper and Total Wealth have wrongfully taken client funds, and continue to have access to and use of clients' funds for their expenses, while their clients cannot withdraw their funds or terminate the relationship. To stop this ongoing dissipation of the remaining client assets, the SEC seeks emergency relief through this action. By engaging in this conduct, Total Wealth and Cooper are violating the investment adviser fraud provisions of the federal securities laws and breaching their fiduciary duties to investors. With this action, the SEC seeks a temporary restraining order and preliminary injunction, and an asset freeze over the Defendants' financial accounts. It also asks for the appointment of a receiver over Total Wealth and its related entities, as well as other necessary, ancillary relief. The SEC also seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties against Total Wealth and Cooper.
DEFENDANTS
5. Total Wealth Management, Inc. is a California corporation with its principal place of business in San Diego, California. Total Wealth registered with the SEC as an investment adviser on November 25, 2009. According to its most recent Form ADV, filed in December 2014, Total Wealth had approximately $103 million under management in 773 client accounts. Total Wealth is the owner and managing member of Altus Capital Management, LLC ("Altus Management").
6. Jacob Keith Cooper is a resident of Washington, Utah and the founder, sole owner, and CEO of Total Wealth. Cooper co-founded Total Wealth with Shoemaker. Cooper founded and solely owns and operates Pinnacle Wealth Group, Inc., a California corporation.
STATEMENT OF FACTS
A. Cooper Controls Total Wealth and the Altus Funds
7. Total Wealth registered with the SEC as an investment adviser in 2009. At all times, Cooper has been the sole owner of Total Wealth and its chief executive officer.
8. In late 2009, Cooper organized the Altus Capital Opportunity Fund, L.P. ("Altus Fund") to allow Total Wealth's clients to pool their money to invest in securities and other investments, and to meet the mandatory minimum investment requirement for funds for which they otherwise might not qualify.
9. In 2011, Cooper established a series of pooled investment funds: the Altus Conservative Portfolio Series, L.P., the Altus Growth Portfolio Series, LP, the Altus Focused Growth Portfolio Series, L.P., the Altus Income Portfolio Series, L.P., the Altus Moderate Growth Portfolio Series, L.P., and the Altus Moderate Portfolio Series, L.P. (collectively, the "Altus Portfolio Series").
10. The Altus Fund and the Altus Portfolio Series held many of the same investments, usually in other funds. In all cases, Cooper selected the investments.
11. Altus Management is the general partner of the Altus Fund and the Altus Portfolio Series. Total Wealth is the investment adviser to the Altus Fund and the Altus Portfolio Series.
12. All investors in the Altus funds were clients of Total Wealth and Cooper when they invested in the funds, and the investments in the Altus Fund and the Altus Portfolio Series were part of an overall client investment strategy managed by Total Wealth and Cooper. Total Wealth and Cooper owe a fiduciary duty to the investors in the Altus Fund and the Altus Portfolio Series.
13. As of December 2014, Total Wealth had approximately $103 million under management in 773 client accounts; the Altus Fund claimed gross assets valued at more than $41 million with 86 beneficial owners; and the Altus Portfolio Series collectively claimed gross assets valued at approximately $30.9 million with 58 beneficial owners.
B. Cooper and Total Wealth Solicited Investors in the Altus Fund and the Altus Portfolio Series
14. The Altus Fund and the Altus Portfolio Series obtained investors through Total Wealth. Prior to the formation of the Altus Fund, existing Total Wealth clients could elect to place their investments directly in the offerings recommended by Total Wealth and Cooper. Starting in 2010, Total Wealth and Cooper began advising their preexisting clients to transfer their separate accounts into the Altus Fund. They also began offering the Altus Fund and, later, the Altus Portfolio Series, to new clients.
15. Total Wealth located potential new clients through paid weekly radio broadcasts, existing client referrals, webinars and Total Wealth's website, and meet-and-greets through a local speaker's bureau or a free lunch. Cooper and other Total Wealth representatives then met with potential investors before accepting them as clients of Total Wealth or as investors in the Altus Fund or Altus Portfolio Series.
16. Total Wealth provided prospective clients with investor packets and brochures, including a packet designed specifically for investors in the Altus Fund and/or Altus Portfolio Series. The packet frequently included an executive summary of the fund, which was created and approved by Cooper. Investors in the Altus Fund and/or Altus Portfolio Series typically received an offering memorandum, a limited partnership agreement, and a subscription agreement.
17. Total Wealth clients who invested directly in the Altus Fund or the Altus Portfolio Series received statements from Altus Fund or the Altus Portfolio Series funds (via Total Wealth).
C. The Administrative Proceeding
18. The SEC instituted public administrative and cease-and-desist proceedings against Total Wealth, Cooper, and two other persons affiliated with Total Wealth, on April 15, 2014. The Order Instituting Proceedings alleges that these four respondents breached their fiduciary duties and defrauded their clients and investors by failing to disclose their conflicts of interest, making material misrepresentations, and engaging in a fraudulent scheme to conceal their unlawful conduct. First, they failed to disclose the conflicts of interest created by their receipt of undisclosed revenue-sharing fees. This conflict arose because the respondents placed their clients' money into other unaffiliated funds that paid the respondents fees for doing so. Second, they materially misrepresented to clients the extent of the due diligence that they conducted on the investments they recommended. Third, they engaged in a pattern of conduct to conceal the revenue-sharing fees they were paid. They also violated an SEC rule regarding an investment adviser's custody of client funds.
19. Following the institution of the administrative proceedings, Cooper and Total Wealth reached a tentative settlement that was subject to approval by the five-member Commission in Washington, DC.
20. As a condition of the proposed settlement, Cooper agreed to escrow $150,000 in advance of Commission consideration of the offer, which was a portion of the monetary relief to be ordered against him.
21. Cooper has stated that he has recently entered a period of "deep financial distress, " and has "no income" and "no job opportunities."
D. Total Wealth's and Cooper's Misappropriation of Client Funds
1. Misappropriation of investor funds for Cooper's settlement
22. Cooper misappropriated $150,000 of client monies from the Altus Fund, through Altus Management, to fund his escrow obligation in connection with the proposed settlement of the administrative proceeding.
23. When asked about the source of the $150,000 placed in escrow, Cooper admitted that "[i]n order to pay the $150,000 required to be placed in escrow, I had to borrow money from the Altus Fund." Cooper caused the Altus Fund to record a "loan" of $150,000 to Altus Management on September 26, 2014, for "SEC settlement."
24. Cooper signed, on behalf of himself, a one-page document dated September 26, 2014, which purports to memorialize a $150,000 loan from Altus Management to Cooper. In that document, Cooper claimed he had determined that it would be "advantageous" to investors for the Altus Fund to provide a "short-term loan so that Mr. Cooper can satisfy the SEC's deadline for placing money in escrow." But to the extent that determination was even made, Cooper had an inherent conflict of interest in deciding whether client funds should be used to fund his personal obligation to the SEC.
25. Altus Management obtained the $150,000 by transferring funds into its account from the account of the Altus Fund.
26. The Altus Fund's limited partnership agreement does not permit the Altus Fund to lend money to Cooper, directly or indirectly through Altus Capital Management, for Cooper to use to satisfy his personal obligations. Under the terms of the operating agreement, Altus Management has the power to "sell, exchange, or otherwise transfer assets of the [Altus Fund]" if such actions are taken "for and on behalf of the [Altus Fund] and... as [Altus Management] shall deem necessary and appropriate to carry out the purposes for which the [Altus Fund] was organized." A loan to Cooper was not necessary and appropriate to carry out the purposes of the Altus Fund.
27. Cooper's misappropriation of investor funds to fund his settlement with the SEC is material to investors because he took money invested and entrusted to Total Wealth by investors, in breach of his fiduciary duty, for his own benefit and without any disclosure or approval from investors. It is also material because it shows that there are inadequate financial controls to protect the investors' funds from unauthorized use by Cooper and Total Wealth.
28. By misappropriating assets of Altus Funds to pay the personal obligations of Cooper, Total Wealth and Cooper breached their fiduciary duties to their clients.
29. At all relevant times, Cooper acted with scienter. As the control person for Total Wealth, Cooper's scienter is imputed to Total Wealth.
2. Unexplained "administrative" fees taken from client accounts
30. Beginning in mid-2014, Total Wealth and Cooper have charged investors inflated and unexplained "administrative fees, " thus dissipating the investors' remaining assets.
31. Some Total Wealth investors have been charged unexplained administrative fees of several thousands of dollars per account without any notice or consent. Total Wealth did not advise the investors of the fees in advance, and most investors did not learn of the increased fees until September 2014, when Total Wealth sent investors their June and July statements. The "administrative fees" that Total Wealth charged Altus Fund investors ranged from approximately $3,500 to $7,500 per account, depending on the size of the account.
32. In most instances, the fees were debited from the cash balances of investor accounts and appeared on account statements as "Admin/Other Fees." One investor, who had an agreement that Total Wealth would charge his credit card for all fees related to his Altus account, incurred a charge of approximately $6,500 on his credit card.
33. After charging the fees to the accounts, Total Wealth informed its clients, primarily through a mass email dated October 6, 2014, that the increased administrative fees were being used to fund, among other things, legal and other expenses incurred in the defense of a class action against the respondents in California state court that mirrors the allegations in the administrative proceeding. In the mass email, Total Wealth made vague statements to investors that "many of you were aware of a class action lawsuit brought on by only a few clients, causing increased fees for all, " and that "[t]he irony is that [the class action] counsel and a very small group of investors have caused a significant amount of those increased fees they have complained about."
34. To the extent that Cooper is purporting to make any determination that any legal expenses for his defense are appropriate, Cooper has an inherent conflict of interest since he is using investor money to defend himself in a lawsuit brought against him by his investors.
35. Cooper's misappropriation of investor funds to allegedly fund his defense costs is material to investors because he took money invested and entrusted to Total Wealth by investors, in breach of his fiduciary duty, for his own benefit and without any disclosure or approval from investors.
36. Upon discovery of the unexplained "administrative fees, " investors emailed and phoned Total Wealth and Cooper asking for a full accounting of the fees. Despite repeated requests for information from clients, neither Total Wealth nor Cooper has ever provided an accounting or any other meaningful explanation regarding the fees.
37. The unexplained administrative fees are particularly egregious because in October 2014 Cooper and Total Wealth informed investors that they have restricted withdrawals and investor funds would be distributed slowly over an extended period because the Altus Fund and Altus Portfolio Series assets are illiquid and impaired.
38. The continued charging of unexplained "administrative fees" is a breach of fiduciary duty by Total Wealth and Cooper and a misappropriation of investors' assets.
39. At all relevant times, Cooper acted with scienter. As the control person for Total Wealth, Cooper's scienter is imputed to Total Wealth.
FIRST CLAIM FOR RELIEF
Fraud by an Investment Adviser Violations of Sections 206(1) and (2) of the Advisers Act (Against Defendants Total Wealth and Cooper)
40. The SEC realleges and incorporates by reference paragraphs 1 through 39 above.
41. Total Wealth and Cooper, by engaging in the conduct described above, directly or indirectly, by use of the mails or means and instrumentalities of interstate commerce:
a. with scienter, employed and are employing devices, schemes or artifices to defraud clients or prospective clients; or
b. engaged in or are engaging in transactions, practices, or courses of business which operated as a fraud or deceit upon clients or prospective clients.
42. By engaging in the conduct described above, Total Wealth and Cooper violated, and unless restrained and enjoined will continue to violate, Sections 206(1) and (2) of the Advisers Act [15 U.S.C. §§ 80b-6(1) and (2)].
SECOND CLAIM FOR RELIEF
Fraud Involving a Pooled Investment Vehicle Violations of Section 206(4) of the Advisers Act and Rule 206(4)-8 (Against Defendants Total Wealth and Cooper)
43. The SEC realleges and incorporates by reference paragraphs 1 through 39 above.
44. Total Wealth and Cooper, by engaging in the conduct described above, while acting as an investment adviser to a pooled investment vehicle, directly or indirectly, by use of the mails or means or instrumentalities of interstate commerce:
a. Made untrue statements of a material fact or omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, to any investor or prospective investor in the pooled investment vehicle; or
b. Engaged in acts, practices, or courses of business that were fraudulent, deceptive, or manipulative with respect to any investor or prospective investor in the pooled investment vehicle.
45. By engaging in the conduct described above, Total Wealth and Cooper violated, and unless restrained and enjoined will continue to violate, Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and Rule 206(4)-8 thereunder [17 C.F.R. § 275.206(4)-8].
PRAYER FOR RELIEF
WHEREFORE, the SEC respectfully requests that the Court:
I.
Issue findings of fact and conclusions of law that Defendants Total Wealth and Cooper committed the alleged violations.
II.
Issue judgments, in forms consistent with Rule 65(d) of the Federal Rules of Civil Procedure, temporarily, preliminarily, and permanently enjoining Defendants Total Wealth and Cooper, and their agents, servants, employees, and attorneys, and those persons in active concert or participation with any of them, who receive actual notice of the judgment by personal service or otherwise, and each of them, from violating Sections 206(1), 206(2), and 206(4) of the Advisers Act, 15 U.S.C. §§ 80b-6(1), 80b-6(2), and 80b-6(4), and Rule 206(4)-8 thereunder, 17 C.F.R. § 275.206(4)-8.
III.
Issue, in a form consistent with Fed.R.Civ.P. 65, a temporary restraining order and a preliminary injunction against Defendants Total Wealth and Cooper, freezing the assets of Total Wealth and Cooper, prohibiting them from destroying documents, granting expedited discovery, and requiring accountings from Total Wealth and Cooper, and appointing a receiver over Total Wealth and its related entities.
IV.
Order Total Wealth and Cooper to disgorge all ill-gotten gains they received, together with prejudgment interest thereon.
V.
Order Defendants Total Wealth and Cooper to pay civil penalties pursuant to Section 209(3) of the Advisers Act, 15 U.S.C. § 80b-(9)e.
VI.
Retain jurisdiction of this action in accordance with the principles of equity and the Federal Rules of Civil Procedure in order to implement and carry out the terms of all orders and decrees that may be entered, or to entertain any suitable application or motion for additional relief within the jurisdiction of this Court.
VII.
Grant such other and further relief as this Court may determine to be just and necessary.