• Fund Manager Agrees to Be Barred From the Securities Industry in Connection With Misappropriating Fund Assets
  • June 5, 2013 | Authors: Michael G. Dana; Peter D. Fetzer; Terry D. Nelson
  • Law Firms: Foley & Lardner LLP - Miami Office ; Foley & Lardner LLP - Milwaukee Office ; Foley & Lardner LLP - Madison Office
  • The SEC recently entered an enforcement order against Walter V. Gerasimowicz and his firms, Meditron Asset Management, LLC, a registered investment adviser, and Meditron Management Group, LLC for, among other things, misappropriating and misusing client assets and making repeated material misrepresentations and omissions to clients.

    The SEC found that for nearly two years ending September 2011, Mr. Gerasimowicz and his two firms diverted approximately $2.65 million from a fund managed by them to prop up another private company controlled by Mr. Gerasimowicz that is currently in Chapter 11 bankruptcy proceedings. In addition, the SEC found that the respondents repeatedly lied or failed to disclose to the fund’s investors the material deviations from the fund’s stated investment strategy and asset valuation policy, misrepresented the amount of assets under management by the investment adviser on both its Web site and in published articles, and violated the custody rule under the Investment Advisers Act of 1940 (Advisers Act) as the fund’s investors failed to receive the fund’s audited financial statements within the rule’s prescribed time period.

    According to the SEC, beginning at least in the fall of 2008 and well into 2011, Mr. Gerasimowicz caused assets of the fund to be siphoned off to SMC Electrical Contracting, Inc. (SMC), which was controlled by Mr. Gerasimowicz and experiencing financial difficulties at the time. Such payments were not disclosed to fund investors. The approximate $2.65 million diverted to SMC from the fund represented about 80 percent of the fund’s assets at the end of 2011. Mr. Gerasimowicz ultimately papered the amounts that were diverted by causing SMC to issue notes to the fund in the amount of $2.7 million which were unsecured and held a non-priority claim in SMC’s bankruptcy filing. Although the notes were both unsecured and non priority, SMC’s notes and loans were valued at cost by the fund.

    All during the period when the fund’s assets were being diverted by the respondents to SMC, investors in the fund received misrepresentations and omissions of material fact from the respondents about the value of the fund and the diversion of its assets.

    Based on the conduct described by the SEC, the respondents violated the anti-fraud provisions under federal securities laws, including various provisions under the Advisers Act.

    Pursuant to the SEC’s order (Administrative Proceeding File No. 3-15024) which was consented to by the parties, Mr. Gerasimowicz is barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent, or nationally recognized statistical rating organization and is prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor, or principal underwriter for a registered investment company or affiliated person of an investment adviser, depositor, or principal underwriter. In addition, Meditron Asset Management, LLC is censured and the respondents further agreed that they will pay disgorgement and civil penalties in amounts to be determined.