February 23, 2024

Two banned former financial advisers face a total of 76 felony charges after investigators said they sold 200 underperforming private equity clients while charging extra fees.

doug miller and Gary Ratburnand six other defendants tied to Alternative Business Finance Corporation of Toledo, Ohio Northwest CapitalA criminal operation was carried out in which the business defrauded investors of $72 million over a 10-year period, according to an indictment Kaifeng earlier this month in state court. The group’s 204 felony charges come seven years after Miller and Rathbun were banned from the industry.

“The scope of this operation was wide-ranging, involving alleged victims, damage and organizers,” the regulatory expert said. Luis Strani The head of Arbitration Insight said in an email, noting that the type of investment proposed by Miller and Rathbun is “beyond the control and oversight of traditional financial regulatory protocols.”

“This means that the checks and balances associated with these non-traditional investments are often masked or missing entirely,” Straney said. “Investors do not benefit from the SEC and FINRA guardrails, and in many cases are forced to protect themselves through a Byzantine structure of confusing information sources.”

Attorneys for Miller, Rathbun and six other defendants, who all pleaded not guilty to the charges at their April 16 arraignment, did not respond to emails seeking comment. A representative for Advisor Group’s Triad Advisors, which allowed Miller and Rathbun to resign in 2014 amid a review of possible violations of the company’s private securities trading policies, declined to comment.

Alternatives need review
and Private trade and other external business activities stay tuned For regulators and industry compliance officersThis case shows why experts like Strani say alternative investing deserves as much scrutiny as possibleHe compared the 741 investments that investigators say Miller and Rathbun sold to a string of struggling businesses to life insurance policies that invested in coins, precious metals or others. Strani noted that the state regulator’s office can assist any investor invited to make such a complex investment.

According to investigators with the Ohio Department of Commerce, investments sold by Miller and Rathbone went to related companies with a common interest in Northwest Capital that funded accounts receivable for businesses, asset-based loans and motorsports teams. Support the provision of bridge financing. Securities Department and Ohio Attorney General’s Bureau of Criminal Investigation. Another defendant, Northwest Development Director James Delwin, prepared spreadsheets to track investments that showed the portfolio did not have enough cash to meet its obligations, investigators said.

Investigators say that in addition to collecting advisory fees through their registered investment advisory firms, Private Wealth Consultants, Miller and Rathbun illegally engaged in what the industry calls “monitoring fees” to conduct due diligence on products by charging $500 an hour for “monitoring fees.” Double investigation”. The indictment alleges that the syndicate received $1.3 million from the fees between 2011 and 2021, with Rathburn’s wife, Nancy, receiving more than one-fifth of the total.

None of the group fully disclosed conflicts of interest or “difficult financial conditions” in the companies involved in the investment, according to investigators.

“Rathbun and Miller failed to protect or preserve (private wealth) client assets,” the indictment states. “Had they performed even half-hearted due diligence on portfolio companies for (Northwest) offerings before recommending them to corporate clients, Rathbun and Miller would have discovered that certain (Northwest) transactions contained material misinformation.”

According to FINRA BrokerCheck, each advisor had worked in the industry for at least 25 years before leaving Triad in 2014.In its Last SEC Form ADV Disclosure From 2018, Private Wealth lists 10 employees, 1,725 ​​accounts and $246.8 million in assets under management. It includes information about the firm’s due diligence procedures in investments and conflicts of interest in monitoring fees, but the firm lists the language as a significant change from its previous version of the Form ADV manual.

“You should be aware that additional compensation by Private Wealth Consultants, its officers or employees could create a conflict of interest that could compromise the objectivity of our firm and these individuals in making advisory recommendations,” the brochure states. “Private Wealth Consultants remains committed to putting the interests of our clients first as part of our fiduciary duty as registered investment advisors.”

The indictment charges the eight defendants with corrupt activities, illegal securities practices, wire fraud, aggravated theft, perjury and money laundering. According to their BrokerCheck filings, last year Miller and three of Rathburn’s former clients filed arbitration proceedings seeking a total of $5 million in damages dating back to their time at Triad. Lucas County court records show the judge in the criminal case scheduled a pretrial conference in July, with a trial date set for February.