The SEC alleges that Los Angeles-based IFA Jeremy Drake told the unnamed athlete and his wife they paid a fee of between 0.15% and 0.2% for the management of their assets, while the actual rate was 1%.
Drake’s deception led the clients to pay $1.2m (£0.93m, €1m) more in management fees than he represented.
The adviser personally received approximately $900,000 of incentive-based compensation based on the fees paid by the clients during the course of his fraud.
Fabricated persona
Drake “went to elaborate lengths to conceal his fraud, including creating and sending false documents and masquerading as another person to corroborate his lies”, according to the SEC’s complaint filed in the US District Court for the Central District of California.
When one of the clients demanded an explanation about the fees in June 2016, Drake created the persona of Ron Stenson, who purportedly corroborated the adviser’s story.
When it was discovered that there was no Stenson, Drake reportedly admitted that he had been lying to his client’s wife, but warned that reporting his misconduct could result in bad publicity for her husband.
“These two clients trusted Drake to manage their investments, but all the while Drake was lying to them and then tried to conceal his lies by fabricating documents and even acting as an imposter to back up his claims,” said Michele Wein Layne, director of the SEC’s Los Angeles regional office.
Details of the charges
The SEC charged Drake with violating and aiding and abetting violations of the antifraud provisions of the Investment Advisers Act of 1940.
It is seeking a permanent injunction, return of the allegedly ill-gotten gains plus interest, and penalties.
The investigation into Drake is continuing.
