SEC Charges Investment Advisors With Fraud

By Cyril Tuohy

InsuranceNewsNet

The Securities and Exchange Commission (SEC) has charged several investment advisors with two counts of stealing $3.1 million from the Detroit police and firefighters pension fund to pay for a failed real estate venture, and then colluding to keep the theft private.

MayfieldGentry Realty Advisors , and its principals and employees, Chauncey C. Mayfield, Blair D. Ackman, Marsha Bass, W. Emery Matthews and Alicia M. Diaz, are alleged to have stolen the money in 2008 for the purchase of two California shopping malls in violation of the Investment Advisors Act of 1940, the SEC said.

When other MayfieldGentry principals learned of the theft, they conspired to keep it secret, admitting to taking the money from the $3.8 billion fund only last April, the SEC also said, in papers filed with the U.S. District Court for the Eastern District of Michigan.</p>

Detroit-based MayfieldGentry has been registered as an advisor since 2004, and its responsibilities grew when the Police and Fire Retirement System of the City of Detroit pension fund gave MayfieldGentry responsibility for a $140 million property portfolio.

Despite Mayfield’s fiduciary duty to the pension fund, the firm didn’t provide any reporting to the fund about the fund’s master account where profits from real estate investments were being kept, according to the SEC complaint.

In 2007, a real estate deal built on a “triple net lease,” structure to be sold to investors soured and MayfieldGentry was left with $200,000 at the end of 2007.  MayfieldGentry dipped into the pension fund, first for $400,000 and then for $2.7 million to buy the California real estate, the SEC said.

While Mayfield Gentry intended to replace the money they had taken out of the fund, MayfieldGentry couldn’t find an investor in the wake of the collapse of the real estate market. Pension fund managers were kept in the dark, and even lied to during subsequent rosy real estate presentations on the fund’s real estate portfolio, the SEC also said.

In addition to fines against MayfieldGentry, the SEC is also ordering the firm return the money it took from the pension fund.

MayfieldGentry had $750 million under management before it was fired by the fund, which pays an average of $30,000 in annual retirement benefits to uniformed retirees.

Mayfield, 57, of Ft. Lauderdale, Fla., has already pleaded guilty in a separate case to one count of “conspiracy to influence or reward local public officials,” the SEC also said.

A message left with Diaz at her office in Detroit was not returned.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].