A federal judge entered a final judgment in a Securities and Exchange Commission action against two local wealth advisers accused of defrauding their clients in a $16-million real estate scheme.
Robert Gravette and Mark MacArthur of Criterion Wealth Management Insurance Services Inc. were ordered to pay $367,332.84 to the SEC by July 8, according to the June 8 judgment filed in their case. The judge’s order also “permanently restrained and enjoined from violating Section 206(2) of the Investment Advisors Act.”
The SEC filed a complaint against Gravette and MacArthur, Criterion’s co-founders, “for breaching their fiduciary duty and defrauding their advisory clients by failing to disclose significant financial conflicts of interest when recommending investments in private real estate investment funds.”
The accusations stem from investment advice the two shared with clients from 2014 to 2017, according to the SEC complaint.
SEC officials did not respond to a request for comment Thursday regarding the outcome.
“The defendants recommended that their advisory clients invest more than $16 million in four private real estate investment funds without disclosing that the fund managers had paid them more than $1 million, which was on top of the fees that defendants were already charging their clients directly,” according to a news release the SEC issued in response to the claims.
“The complaint further alleges the defendants were incentivized to keep their clients invested in the funds, rather than allocate their capital elsewhere, because the additional side compensation was recurring and depended on Criterion’s clients remaining invested. For two of the funds, this undisclosed compensation arrangement resulted in reduced investment returns for the defendants’ advisory clients,” the release states.
The penalty amount comes from the $231,948 in profits; interest in the amount of $23,770.84 and $111,614 in civil assessments.
The ruling also explains specific guidelines for how M2 Financial, MacArthur’s current firm, can continue to do business:
The defendant (including MacArthur’s officers, agents and employees at M2 Financial LLC) are “permanently restrained and enjoined from receiving any compensation, beyond an advisory fee paid by or on behalf of a client, from an advisory client’s purchase or sale of securities or other investment products, unless the following is disclosed, in writing, before … each transaction: (i) the type of compensation; (ii) the recipients of the compensation; (iii) the amount of the compensation; (iv) the potential or actual impact of the compensation, if any, on clients’ investment returns; and (v) any corresponding conflict of interest.”
Mark MacArthur is the son of John MacArthur, who was president of The Master’s University for 32 years before taking the role of chancellor in 2019. Mark MacArthur is not an employee of TMU nor is he involved in its governance, according to a spokesman for the university.
A call to a number listed for Mark MacArthur’s business at 27441 Tourney Road, which is now called M2 Stewardship Group, was not returned Thursday.
The group’s website describes MW as “a collection of three investment endeavors under the leadership and stewardship of Mark MacArthur: M2 Capital Advisors; M2PowerPlan! Retirement Plan Consulting; and EASI Investments LLC, growth stock research and portfolio management.”