SEC freezes belongings of former Wealth Enhancement Group advisor

When she was promoting her $674 million advisory agency to Wealth Enhancement Group in 2021, Julie Anne Darrah was identified about her rural California neighborhood as a enterprise proprietor and advocate for senior residents.

To a lot of her advisory shoppers, in keeping with a lawsuit filed on Oct. 20 by Wealth Enhancement Group, she was “the daughter they by no means had.”

Now the previous proprietor of Vivid Monetary Administration — an Orcutt, California, hybrid RIA she helped begin in 2015 — stands accused by Wealth Enhancement Group and the Securities and Alternate Fee of defrauding her aged shoppers of thousands and thousands. The newest of these filings got here on Thursday when the SEC froze Darrah’s belongings whereas it pursues its case in opposition to her.

Each the federal regulator and Wealth Enhancement Group, a Plymouth, Minnesota-based agency with $70.8 billion in shopper belongings, accuse Darrah of stealing $2.25 million from aged feminine shoppers who turned to her for monetary recommendation and resolution making. She’s additionally accused of taking $54,100 of that complete from a belief arrange for an individual with special needs.

In its swimsuit filed in Minnesota federal district courtroom, Wealth Enhancement Group says Darrah was in a position to make use of her place as “the daughter” her shoppers “by no means had” to benefit from them in a number of methods. Many instances she used the religion they positioned in her to turn into their trustee or acquire energy of lawyer and management over their brokerage and banking accounts, the swimsuit alleges. 

As soon as gaining authority over their belongings, she would allegedly transfer cash into her personal checking account and purchase actual property and luxurious automobiles and put money into native companies. An article on Noozhawk, a neighborhood information website for Santa Barbara County, identifies Darrah because the half proprietor of a espresso store and bakery and two delis.

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In a single occasion of alleged fraud cited by the SEC, Darrah is alleged to have stolen greater than $1 million from a widow — recognized in courtroom paperwork solely by the initials S.S. — who was 75 when she first employed Darrah and now lives in a nursing dwelling. Darrrah, in keeping with the SEC, gained discretionary authority to commerce in S.S.’s brokerage accounts after she and Vivid Monetary Administration had been employed as advisors in 2015.

Darrah, in keeping with the SEC, ultimately used her discretionary authority to promote all of the shopper’s securities. Of the proceeds, she transferred $631,975 to herself, whereas utilizing among the different cash to assist her enterprise enterprises or as funds to different advisory shoppers. 

Louis Straney, a regulatory professional at Arbitration Insight, stated the case strikes him as a traditional occasion of what is known as affinity fraud, wherein fraudsters use sure traits they share with, or embody for, their victims to steal from them.

If the accusations in opposition to Darrah are true, it seems that she was capable of play a task for her shoppers that may have in any other case been crammed by family members.

“Victims may be very susceptible to a girl who pays consideration to them, takes them to lunch and goes to church or tabernacle,” Straney stated. “They are often very aware of individuals like that.” 

The SEC additionally alleges that Darrah obtained a “standing letter of authorization” enabling her to switch among the cash out of the shopper’s financial institution accounts. In April 2017, in keeping with the SEC, Darrah was named S.S.’s trustee. By the tip of the yr, S.S.’s financial institution and brokerage statements had been all being despatched to Darrah. In March 2021, the SEC alleges, she arrange a checking account for S.S.’s belief, making herself the only signatory.

In line with the SEC, “from mid-Might 2023 to mid-July 2023, Darrah used $30,085 from S.S.’s financial institution accounts to pay for private prices Darrah had made on S.S.’s bank card.”

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By the tip of July this yr, S.S.’s financial institution and brokerage accounts had gone from containing greater than $1 million to $87,302. Darrah can also be accused of stealing $578,400 from S.S.’s sister, recognized solely as M.S.

Darrah didn’t instantly reply to requests for remark. Wealth Enhancement Group, which found her alleged misdeeds following its buy of Vivid Monetary Administration, confirmed that Darrah has been fired.

“We’re conducting a radical inside overview with assist from exterior authorized counsel and exterior specialists and are cooperating with authorities authorities of their overview of the matter,” the agency stated in an e-mail assertion. “The security and safety of our shoppers’ belongings is our primary precedence.”

Douglas Schulz, a securities lawyer and the president of Make investments Securities Consulting, famous regulators have been calling explicit consideration to widespread elderly fraud in recent times. Because the U.S. inhabitants’s common age continues to rise, the necessity to do extra to guard individuals who turn into susceptible by way of in poor health well being and psychological infirmity will solely develop.

“The aged have all the time been one of many best targets,” Schulz stated. “To start with, who owns all of the wealth within the nation?  I imply, aside from the tremendous wealthy who inherited cash, or married it or began a tech firm — the overwhelming majority of it’s in retirement accounts.”

The SEC alleges the particular wants belief Darrah is accused of stealing from was arrange by her on the behest of a shopper recognized by the initials J.S. The $54,125 held in it was meant for the shopper’s brother. Of the cash Darrah took, in keeping with the SEC, she ultimately paid $14,000 to the brother and stored $39,200 for herself.

Wealth Enhancement Group accuses Darrah of mendacity to it and to regulators across the time of the sale of Vivid Monetary Administration. She, in keeping with the agency’s swimsuit, was not upfront about the truth that she was the trustee to a number of of her shoppers, as an alternative claiming she was merely a “successor trustee.” That meant she would not have management of the underlying belongings till the precise trustees had died.

She additionally, in keeping with the SEC, stated she hadn’t borrowed cash from shoppers, though she had promissory notes from each S.S and M.S. And she or he, the regulator alleges, dedicated numerous breaches of the federal Custody Rule — which requires advisors to tell shoppers of recent accounts opened of their names and commonly present stories on the belongings they maintain.

Darrah additional stands accused of submitting deceptive data on the Kind ADVs all advisory corporations should file with the SEC every year. Particularly, she’s alleged to have falsely acknowledged on types turned in between March 2017 and March 2019 that neither she nor Vivid Monetary Administration had custody of shopper belongings. In line with the SEC, she later, on brochures filed from April 2019 to March 2021, acknowledged having custody of sure belongings however falsely claimed to have arrange safeguards to stop abuses.

The SEC accuses Darrah and Vivid Monetary Administration of violating provisions of the Securities Alternate Act of 1934 and the Funding Adviser Act of 1940. It is searching for  disgorgement of ill-gotten beneficial properties, prejudgment curiosity and financial penalties. In its swimsuit, Wealth Enhancement Group accuses her of 13 violations, together with unjust enrichment {and professional} negligence, and seeks disgorgement and restitution for victims, amongst different issues.