On April 30, 2014 the Securities and Exchange Commission filed a lawsuit against a Utah-based company called American Pension Services, Inc. (“APS”) and alleged that the retirement plan administrator defrauded investors. This is not a Ponzi Scheme case (unlike many the SEC files in Utah) it is really about forgery and theft. And it was not just any money that was stolen — APS was a third-party administrator for self-directed 401Ks and IRA’s which the securities industry and federal regulations work hard to protect. Stealing someone’s retirement funds is like stealing money out of the contribution plate at church. It’s just not done.
The SEC has alleged that the owner of APS, Curtis L. DeYoung of Riverton Utah took at least $22.7 million from client accounts and invested it in other Utah Ponzi schemes such as Impact Cash and Horizon Mortgage — both of which are being managed by Utah-based receiver and trustee Gil Miller. Impact Cash is in receivership at the request of the SEC and Horizon Mortgage is in bankruptcy. According to the SEC’s complaint, DeYoung squandered investor funds on high-risk investments and hid the losses by issuing inflated account statements, allowing him to continue collecting fees and further victimizing his customers. In addition to Impact Cash and Horizon, DeYoung allegedly invested with a friend of his named Michael Memmott who ran a company called Innovative Equity Partners LLC, with Charlevoix Homes LLC in Arizona, and in another venture called Remington Commercial Advisors, LLC. It is unclear whether these companies are solvent, but Charlevoix Homes is in bankruptcy.
According to the SEC Complaint this fraud scheme dates back to at least 2005 and targeted customers with retirement accounts holding non-traditional assets typically not available through traditional 401(k) retirement plans or other IRA custodians. DeYoung allegedly used forged letters and signatures to invest these retirement funds on behalf of customers without their knowledge. This is extremely troubling to say the least.
Among investment professionals that I work with APS has long had a reputation for providing an unusual amount of flexibility to investors for where they placed their self-directed funds. So if you had an investment that you wanted to get into with your IRA and your current plan administrator would not permit it, you could always move your funds to APS who would let you do it. Because of this flexibility there was a constant flow of IRA money into APS, and in many cases these transfers were at the urging of investment professionals who wanted to put their clients’ funds into investments that generated higher returns – but also had higher risk. Presumably risk of theft by the owner of APS was not among the risks that were disclosed to investors. Although it is unclear whether these investment professionals knew or should have known of the problems with APS, in my view the unusual flexibility APS offered should have been a red flag.
Surprisingly the SEC obtained an asset freeze of DeYoung’s account as well as all of the funds in APS (i.e. the funds which were not stolen) which will likely cause significant problems for those who have accounts there until things get sorted out. Meanwhile DeYoung’s lawyer, Paul Moxley, is attempting to obtain release of some of these funds to pay for his legal defense.
The court appointed as receiver a California lawyer, Diane Thompson, who will be managing APS and the accounts. The receiver’s website has a Frequently Asked Questions page with current information about investors’ access to their funds, among other things. Presumably Ms. Thompson and her law firm will shortly disclose what actions she is taking to recover the missing $22 million. APS depositors should consult this website frequently for updates and make sure the receiver has their correct contact information.
Moreover, I believe it is usually a good idea for investors or depositors in a receivership such as this to join together and hire experienced SEC receivership counsel to follow the case, appear in court if necessary, and ensure that their interests are protected. SEC receivers have significant latitude in fashioning a plan of distribution for recovered funds (if any), but there are always winners and losers in those plans. Good counsel can help ensure that you are treated fairly.
Copyright 2014 by Mark W. Pugsley. All rights reserved.
Doesn’t the SEC or some other State or Federal enforcement/oversight agency have some responsibility for allowing the fraud to occur without their detecting it?
It would be great if federal agencies were omniscient and could catch these things, but criminals are careful to cover their tracks and these issues are hard to find. Plus, APS was not even technically regulated by the SEC believe it or not. I’m not sure there is any federal agency with oversight authority over companies like APS, and it was only by happenstance that the SEC discovered the theft.
That is why the SEC’s new whistleblower program is so significant. It gives significant financial incentives to those who have information about ongoing fraud to report the fraud so it can be stopped early, before more people are harmed.
I understand and agree that oversight agencies cannot be “omniscient”. That said, I think that they should also bear some responsibility in these matters. In other words, we assume that the bad guys are going to try and get away with things. What the regulators seem to focus on are the good guys and extracting fees from them. If the good guys make a mistake, they get fined. If the regulators make a mistake, however, they bear no responsibility and, generally, the taxpayers end up paying for their “mistake”.
APS was supposed to be my IRA agent not an investment advisor. I invested my assets in land because I didn’t want APS to have cash on hand for the piece of mind of knowing APS was not involved. After finding out about this fiasco, I sent the Receiver 17 pages of disagreement with the 10% deduction plan which took probably 15 minutes to come up with and 2 minutes by the Judge to okay. Because the Judge was either not shown, did not understand or worse yet didn’t care in the 3 alternatives I offered…they (attorneys/judge) have opened a can of worms. This could very well end up being a local county against state and or federal government case. The two lots involved are outside Salt Lake County which means that each lot it under the county Sheriff where those lots are located. Since APS was a fraudulent IRA administrator, they in effect are not an administrator at all and therefor need to be replaced by an IRA service of my choice not the court or the attorneys. If anyone else out there is in a similar situation, email me. Also I will be in communication with the IRS requiring a full audit of APS and any IRA thereof. Since the court and attorneys paid no attention to the detailed solution I sent, I would also like to personally audit APS as well as interview past employees to get the true story. I refuse to pay a dime to cover fifo investors that were either insiders, buddies, investment ignorant or just plain negligent in not informing SEC that something was wrong. If the Judge did not see my document….I want to know why? If he did he needs to explain why he is rejecting my document. Other alternatives in the document call for a full investigation of this case by the IRS to give IRA holders assurance that those closely held with the APS (14 family memmbers) are not only prosecuted but are liable for the lost funds. As early as August 2008 it was known for sure that something was not right with APS. All IRA holder who joined on after that date, that did not let APS invest in bogus companies or notes, should be off the hook with no liability. As a materially involved IRA holder with a fraudulent IRA agent, I want to see the books and all IRA transfers and transactions that involve notes or bogus investment companies that APS recommended….these are the first ones that should be paying for the loss in full. Investor beware is the critical issue here. I’m sorry they didn’t exercise due diligence in their decisions but that’s their problem.
I am one of the victims.. I transferred in my Land investment asset and some cash in 2012 however since I took some of the cash when I left my job to move to another state the SEC says the in kind exemption is denied. My complaint or anger is the fact that $50,000 land value was never in the master account for D’young to steal! Now the SEC Diane Thompson is stealing it for him! Just got my first threatening letter to pay $5000 or be in contempt if court! So any class action suits that exist for non-liquid assets and in kind exceptions I would love to be apart of..
Your frustration with the matter comes through LOUD AND CLEAR, D. Thomas and, frankly, I agree with you. To me this case, as so many others like this, where the default resolutions are simple “the easiest way out”. Or, they default to dumping the losses on those who are least likely to fight back.
Clearly, one of the benefits of self-directing is avoiding the lack of control one generally has with Wall Street type investments. It seems almost impossible for any one person to have been able to allegedly steal the amount of money in question without having inside and outside collaboration, aka employees and business associates in on the deal.
Rather than do the work of determining the real perpetrators of this crime, it is much easier to just give all of the innocent victims a bill and insist on them paying it.
I think your characterization of the situation is spot-on Nick.