SEC ANNOUNCES CHARGES, ASSET FREEZE AGAINST UTAH RESIDENT AND INVESTMENT ADVISORY FIRM

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23188 / February 5, 2015

Securities and Exchange Commission v. Total Wealth Management, Inc., et al., Civil Action No. 15-CV-0226-BAS-DHB

SEC Obtains Emergency Relief Against San Diego Investement Advisor Charged with Wrongfully Taking Client Funds

The Securities and Exchange Commission today announced charges and an emergency temporary restraining order and asset freeze against a Utah resident and his San Diego, Calif. investment advisory firm.

The SEC alleges that Jacob Keith Cooper and Total Wealth Management Inc. wrongfully took at least $150,000 from clients in order to partially fund the potential settlement of an administrative proceeding previously instituted against them in 2014 by the SEC's Division of According to the SEC's complaint, filed yesterday in the U.S. District Court for the Southern District of California, the Division of Enforcement had reached a tentative settlement with Cooper and Total Wealth in the previously-instituted administrative proceeding that required Cooper to escrow $150,000. However, after learning that Cooper intended to pay this amount using funds misappropriated from clients, the Division terminated this settlement and the agency brought this emergency action in federal district court. Cooper's use of investor funds for his settlement with the SEC was never disclosed to or authorized by clients, and was a breach of Total Wealth's and Cooper's fiduciary duty to their clients. According to the complaint, Cooper admitted to taking $150,000 in investor monies to fund his escrow settlement, although he claims that it was a "loan."

According to the complaint, Cooper has also admitted that he and Total Wealth have used investor monies to pay unspecified legal expenses related to the Division of Enforcement's previously-instituted administrative proceeding as well as a private class action lawsuit filed in California state court. The complaint alleges that Total Wealth has been charging investors unexplained, inflated "administrative fees" to pay those expenses and that Total Wealth and Cooper have failed to provide any accounting or meaningful explanation for the fees to investors, despite investors' repeated requests.

The Honorable Cynthia Bashant for the U.S. District Court for the Southern District of California issued an order temporarily enjoining Cooper and Total Wealth from future violations of Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940, and rule 206(4)-8 thereunder, as well as orders (1) freezing Cooper's and Total Wealth's assets; (2) appointing a temporary receiver; (3) prohibiting the destruction of documents, (4) expediting discovery; and (5) requiring accountings. Cooper and Total Wealth stipulated to the entry of the court orders without admitting or denying the SEC's allegations. The SEC also seeks preliminary and permanent injunctions, return of ill-gotten gains with prejudgment interest, and financial penalties against Cooper and Total Wealth.

A hearing on whether a preliminary injunction should be issued against the defendants and whether a permanent receiver should be appointed is scheduled for February 13, 2015.

CANOPY FINANCIAL , INC., CO-FOUNDERS GO TO PRISON FOR STEALING

The following excerpt is from the Securities and Exchange Commission website:

February 27, 2012
“United States v. Jeremy Blackburn and Anthony Banas, Criminal Action No. 09 CR 976 (N.D. Ill. March 1, 2010)
The U.S. Securities and Exchange Commission (Commission) announced that on February 15, 2012, co-founders of the bankrupt Canopy Financial, Inc., a health care transaction-software company based in Chicago, were sentenced to 15 and 13 years in prison for defrauding investors and clients of more than $93 million. Anthony Banas, Canopy’s chief technology officer, was sentenced to 160 months in prison, while Jeremy Blackburn, Canopy’s former president and chief operating officer, was sentenced to 180 months in prison. Both men pleaded guilty in late 2010 to one count of wire fraud, admitting they engaged in a fraud scheme that cheated investors of approximately $75 million and also misappropriated more than $18 million from customer accounts intended for health care savings and expenses. In imposing sentence, United States District Judge Ruben Castillo of the Northern District of Illinois noted that this case was the most aggravated financial fraud he had seen in his 18 years on the federal bench. The judge ordered both men to pay mandatory restitution and forfeiture totaling $93,125,918.

According to their plea agreements, Blackburn and Banas used false information about Canopy’s financial condition, including a bogus auditor’s report and falsified bank statements, to fraudulently obtain approximately $75 million from several private equity investors in 2009. Approximately $39 million of that money was used to redeem shares of other Canopy investors, including approximately $1.6 million that went to Blackburn and $975,000 that went to Banas, while another $29 million obtained from investors was deposited into Canopy operating accounts.

Also according to their plea agreements, Blackburn and Banas misappropriated Canopy operating funds for their own benefit. Blackburn took approximately $6 million in unauthorized withdrawals and transfers from Canopy bank accounts during 2009. Blackburn typically directed a Canopy employee, or occasionally Banas, to transfer Canopy funds to his bank accounts or to pay for his personal expenses, including credit card balances, luxury car purchases, and travel on a private jet. Blackburn also paid for personal home renovations, bought sports tickets and purchased jewelry and watches using misappropriated Canopy funds. Banas used misappropriated Canopy money to invest $300,000 in a nightclub. Banas also spent $400,000 between 2007 and 2009 on other personal expenses.

Blackburn admitted that he created phony bank statements during 2009 to conceal the transfer of more than $18 million from special health care accounts in which Canopy held funds as custodian for the benefit of more than 1,600 clients and customers to make payments to medical providers. The funds were transferred to Canopy’s own operating accounts, as well as to benefit Blackburn and Banas personally.

The Commission’s cases against Blackburn (SEC v. Canopy Financial, Inc., et al., Case No. 09-CV-7429, USDC, N.D.IL (LR-21324) and Banas (SEC v. Anthony T. Banas, Case No. 10- CV 3877 USDC N.D. IL) (LR-21566) resulted in permanent injunctions against both individuals, by consent, for violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)] and the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5 thereunder], ordered disgorgement of $1,779,759.83 and prejudgment interest of $71,182.03 against Blackburn in April 2011 and disgorgement of $975,548.25 and prejudgment interest of $32,910.45 against Banas in June 2010.
The Commission acknowledges the assistance of the U.S. Attorney’s Office of the Northern District of Illinois and the Chicago Regional Office of the U.S. Department of Labor in this matter.”