Let’s say you’ve used the same CPA for a decade or more. He or she has done well, getting you refunds you didn’t expect and finding deductions you never even thought of. When he or she tells you about a sound investment opportunity, would you listen? Sure, you’d listen if only because you’ve known each other that long. Last week, the SEC filed an enforcement action against a California CPA who offered his clients investments in real estate limited partnerships. According to the SEC’s press release:
On October 18, 2011, the Securities and Exchange Commission (“Commission”) filed a complaint in United States District Court in Riverside, California against Copeland Wealth Management, A Financial Advisory Corporation (“CWM”), Copeland Wealth Management, A Real Estate Corporation (“Copeland Realty”), and Charles P. Copeland (“Charles Copeland”) for fraud and breach of fiduciary duty. As an investment adviser registered with the Commission, CWM manages approximately $125 million in assets under management. The assets under management are primarily mutual funds and real estate funds. Copeland Realty, an unregistered investment adviser, is the general partner for 21 limited partnerships primarily invested in real estate. Charles Copeland, a certified public accountant, is the founder, co-owner and officer of both CWM and Copeland Realty.
The Commission alleges that from 2003 through May 31, 2011, Charles Copeland, CWM, and Copeland Realty raised over $62 million from over 100 investors, including many of Charles Copeland’s accounting clients, by selling interests in limited partnerships operated by CWM and Copeland Realty. According to the Commission’s complaint, throughout the offer and sale of the limited partnerships, Charles Copeland, CWM, and Copeland Realty made material misrepresentations and omissions regarding: (1) the use of investor funds, (2) conflicts of interest, (3) guaranteed returns, (4) the unauthorized trading of put options, and (5) the payment of undisclosed real estate commissions and other related compensation.
Notice two things about this case. First, notice that Copeland was a CPA. Too often investors lose their assets to someone who holds a professional license. We tend to think that such folks would never put their meal ticket in jeopardy by breaking the law. But they do, often. Please just remember that.
Finally, notice that one of Copeland’s companies was properly registered with the SEC as an investment adviser. Registered investment advisers (RIAs) owe fiduciary duties to their clients. That’s significant because it requires the RIA to act in the client’s best interest and to disclose and eliminate, if possible, all conflicts of interest. That status is important to a vigilant investor because it allows an entirely separate line of due diligence. The vigilant investor can investigate not only for evidence of fraud, but also for evidence of undisclosed conflicts. If the vigilant investor finds such conflicts, he or she knows that the RIA is breaching his or her fiduciary duty and can stay away. What’s more, he or she can report the violations to the SEC and/or state securities commissioners, who can shut down the RIA before he or she snags not yet vigilant investors.
Learn what it takes to be a vigilant investor. You can do a lot of good, not just for yourself, but for others who might lose everything if not for your efforts.