The Securities and Exchange Commission has charged a Philadelphia-area investment adviser and its principal with misappropriating millions of dollars in client assets, and has obtained
The Securities and Exchange Commission has charged a Philadelphia-area investment adviser and its principal with misappropriating millions of dollars in client assets, and has obtained an emergency court order freezing their assets.
The SEC alleges that through a commingled brokerage account, Donald Anthony Walker Young of Coatesville, Philadelphia, and Acorn Capital Management misappropriated more than USD23m from investors buying limited partnership interests in Acorn II, which invested in publicly traded securities.
Young used investor funds to pay other investors in the nature of a Ponzi scheme, and directly stole some of the money to purchase a vacation home in Palm Beach, Florida, and pay personal expenses related to horse ownership and racing, construction, boats, limousines, chartered aircraft and other luxuries.
According to the SEC’s complaint, the defendants refused to provide Commission staff with client files, account statements, general ledgers and other documents that are statutorily required to be maintained and produced by registered investment advisers.
"As alleged in our complaint, Young covered up his thefts by giving phony information to accountants who kept track of each investor’s capital balance, and giving false statements to investors that didn’t reflect the thefts," says Robert Khuzami, director of the SEC’s division of enforcement. "Young led investors to believe their money was being invested properly when in reality he was spending it unscrupulously."
Daniel M. Hawke, director of the SEC’s Philadelphia regional office, says: "Young repeatedly refused to provide Commission staff with required documents that would have revealed his scheme. The staff has gone to great lengths to develop the evidence necessary to halt this fraud."
The Honourable John R. Padova, US District Judge for the Eastern District of Pennsylvania, issued an order on 17 April granting a temporary restraining order, freezing assets and imposing other emergency relief for investors.
According to the SEC’s complaint, Young established Acorn II in 2001 and has nearly complete control of all aspects of the operations and makes all of the investment decisions. In addition, he has complete control of and access to the assets of Acorn II held at a broker-dealer. Young also controls the information provided to investors, accountants and the broker-dealer and he has used this information flow to provide false information about investor deposits and withdrawals, and to perpetuate the scheme.
The SEC alleges that although the Acorn II account currently holds approximately USD3m for approximately 40 investors, Young has told investors through quarterly and annual statements that their account balances are much higher. In February 2009, Young gave phony documents to employees at the broker-dealer to deceive them into believing that Acorn II held an additional USD23m at two other broker-dealers.
In addition to the emergency relief, the Commission’s complaint seeks disgorgement of the defendants’ ill-gotten gains plus pre-judgment interest, financial penalties, and permanent injunctions barring future violations of the charged provisions of the federal securities laws.
The SEC’s investigation is continuing.
