The Securities and Exchange Commission recently provided a notice on the Commission’s Rules on Fair Fund and Disgorgement Plans, specifically that the division of enforcement has submitted to the SEC a proposed plan of distribution for the distribution of monies paid in an on-going case related to HCR Wealth Advisors.
On September 23, 2019, the Commission issued an Order Instituting Administrative and Cease-and-Desist Proceedings after finding that HCR Wealth Advisors failed to reasonably supervise Jeremy Joseph Drake, formerly an investment adviser representative of HCR, and failed to “implement reasonable compliance-related policies and procedures” in response to red flags about Drake’s handling of client accounts.
The SEC says that, from 2012 to July 2016, Drake defrauded two HCR clients, a married couple, out of approximately $1.2 million in management fees, approximately $900,000 of which Drake received as incentive-based compensation from HCR.
According to the order, during the same period, Drake misappropriated approximately $215,000 from the accounts of four HCR clients, including the married couple and two other individuals, to support a struggling restaurant that was majority owned by the married couple and in which Drake held a minority ownership interest.
The Commission ordered Drake to pay a penalty of $220,000 to the Commission. The order provided that the Commission may distribute the civil money penalties if, in its discretion, the Commission orders the establishment of a Fair Fund.
Drake paid a total of $220,000 pursuant to the order. Prior to entry of the order, HCR paid the married couple $300,000. Drake also paid the married couple $600,000 in partial satisfaction of a criminal restitution order entered against him. The SEC says Drake additionally reimbursed the third client from the restaurant account that he controlled. Further, in connection with the issuance of the order, Drake voluntarily undertook to pay the married couple an additional $328,912, which fully compensated them for their losses of $1.2 million resulting from Drake’s management fee fraud. According to the SEC, the fourth individual, who was defrauded when Drake transferred $100,000 from her account to the restaurant’s account, remains uncompensated.
On December 2, 2021, the Commission issued an order establishing a Fair Fund, so the civil money penalty paid by HCR can be distributed to the remaining harmed investor.
According to BrokerCheck, Drake entered the industry in 2004 through UBS Financial Services which is where he remained for two years before joining Morgan Stanley DW Inc. for less than a year. He moved to Morgan Stanley & Co. shortly after, for a year, in 2007 and was barred by the SEC in 2021.