Aequitas Management, the Oregon-based RIA accused in 2016 of running a massive Ponzi-like scheme, and its top executives have finally settled with the Securities and Exchange Commission.
CEO Robert Jesenik will have to pay $1.57 million to settle fraud charges, while executive vice president Brian A. Oliver and former CFO N. Scott Gillis will each have to pay hundreds of thousands of dollars as part of a consent decree finalized in Oregon federal court on April 13.
All three are permanently barred from the securities industry.
The Aequitas entities, which are in receivership, will have to pay $540 million in disgorgement and interest as part of the final judgment.
The SEC's complaint, filed on March 10, 2016, alleged that Aequitas Management and four affiliates defrauded more than 1,500 investors nationwide when that money was being used primarily to cover operating losses and to pay earlier investors in a Ponzi-like fashion, according to an April 24 SEC press release on the final judgment. Investors had been bilked out of hundreds of millions of dollars, the SEC said.
As previously reported by RIA Intel, Aequitas claimed to manage $1.67 billion before it collapsed, which would likely make its downfall Oregon’s biggest-ever investment scandal. Aequitas also had tentacles spread throughout the RIA world.
Aequitas was allegedly a fraud on top of another fraud – Corinthian Colleges, the scandal ridden for-profit college that went bankrupt in 2015. Between 2011 and 2014, Aequitas purchased more than $561 million in student loan debt, almost all of which was with Corinthian.
Aequitas’ finances were already spiraling down, and the worse they got, the more student debt the firm bought from Corinthian. By the time Corinthian filed for bankruptcy – and students went on strike refusing to pay their loans – some 75% of the receivables of the Aequitas notes came from the for-profit scam, according to RIA Intel’s first story on Aequitas.
The SEC's complaint alleged that Jesenik and Oliver were “aware of Aequitas's calamitous financial condition yet continued to solicit millions of dollars from investors to pay the firm's ever-increasing expenses and attempt to stave off the impending collapse of the business.” It added that “Gillis allegedly concealed the firm's insolvency from investors and was aware that Jesenik and Oliver continued soliciting investors so that Aequitas could pay operating expenses and repay earlier investors with money from new investors.”
As part of the final consent judgment, the defendants are prohibited from “soliciting anyone to purchase or sell a security and prohibiting them from participating in the issuance, offer, or sale of any security of an entity they control,” the SEC’s release stated. They are also prohibited from violating the SEC’s antifraud provisions.
Jesenik will have to pay $1.57 million in disgorgement, interest and penalties, while Oliver will pay $235,928 in disgorgement and interest, and Gillis will pay a $300,000 civil penalty. The final judgments prohibit Jesenik, Oliver, and Gillis from serving as officers or directors of any public company. Oliver was also charged criminally for his conduct. He pled guilty but has not yet been sentenced.
In a separate administrative proceeding, Jesenik, Oliver, and Gillis were barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical ratings organization, the SEC said.
In addition, it said Gillis agreed to be permanently suspended from appearing and practicing before the SEC as an accountant and cannot work as an auditor for pubic companies.
The Aequitas entities, Jesenik, and Gillis consented to the entry of final judgment without admitting or denying the SEC's allegations.