By: Matthew Arndt, CFA, CPA, CFP | May 26, 2009 | Financial Advisors, Illegal Schemes & Scams, The Regulators, Who Can I Trust?
The former President of the National Association of Personal Financial Advisors (NAPFA), James Putman was charged by the SEC with taking kickbacks from unregistered investment pools in which his advisory firm, Wealth Management, LLC placed $102 million in client assets. Putnam was currently serving as CEO of Wealth Management, LLC, which he started in 1985.
Putnam is charged with several securities law violations, along with the firm’s chief investment officer, Simone Fevola. The more serious charges consist of engaging in a kickback scheme as well as misrepresenting the safety and stability of investments. The SEC has taken legal action to freeze Wealth Management’s assets.
Once again, this scam has many similarities to the Madoff fraud. Namely, Wealth Management, LLC took custody of client assets; therefore it was acting as both adviser and custodian. This arrangement, acting as custodian and investment adviser greatly increases the chances that this sort of misconduct will take place. It behooves investors to make sure that their money is being held at a custodian wholly independent from their investment adviser to diminish the potential for such wrongdoing.
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