Investment Advisers – A Continuing Focus of Enforcement

Investment advisers have become a key focus of the enforcement division in recent years. For years corporate disclosure and financial cases were the primary focus of the division. Now actions involving investment advisers often outnumber those brought in that traditional area of focus. Many of these center on undisclosed conflicts or misappropriation. The Commission’s latest case in this area combines elements of its offering fraud actions with the adviser cases centered on misappropriation.

SEC v. Mueller, Civil Action No. 5:21-cv-785 (W.D. Tx. Filed August 20, 2021) is an action which names as defendants: Robert Mueller, and attorney and unregistered investment adviser; Deeproot Funds LLC, also an investment adviser; and Policy Services Inc., an entity used to hold life insurance policies for related entities.

Beginning in 2015, and continuing for the next six years, Defendants defrauded investment funds they advised out of almost $58 million. Just under 300 investors were involved. Defendants marketed the funds to, among others, retirees with a pitch that much of the investment money would be put into life insurance policies, a safe investment. Those investments were projected to return conservative payouts of either 5% or 7% over a designated period. Not disclosed until 2019, was the fact that while the life insurance policies were acquired, they were held indirectly through another entity.

After raised over $58 million for one fund Defendants comingled the money in the deeproot and Policy Services bank accounts. Defendants also spent less than $10 million to acquire the life insurance policies for the Funds. After 2017 no new policies were acquired. Most of the investor funds were used as if in a piggy bank by Mr. Mueller. Since 2015 neither the life insurance policies nor the capital investments generated sufficient cash flow to support operations. As a result, about $820,000 in Ponzi like payments were made. In addition, Defendant Mueller used about $1.5 million of the Funds’ assets to pay personal expenses. The complaint alleges violations of each subsection of Securities Act Section 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1), 206(2) and 206(4). The case is pending.