Last week, the Securities and Exchange Commission (SEC) filed a Complaint in a Florida federal court against Wealth Strategy Partners, LC (based in Sarasota, Florida), Stevens Resource Group, LLC (based in Washington State), and their principals, Harvey Altholtz and George Stevens, for fraudulent conduct in relation to two private funds, the Adamas Fund, LLP and the Stealth Fund, LLP.
According to the SEC, Altholtz established the two private funds in question (Adamas and Stealth) in 2007. The purpose of these funds was to primarily invest in small publicly-traded companies referred to as “nanocaps.” The investments in the small companies were usually in the form of promissory notes, convertible notes, or warrants. It is alleged that for the Adamas Fund, Altholtz and Wealth Strategy raised approximately $18 million from approximately 86 investors between 2007 and 2008. With regard to the Stealth Fund, Altholtz and Wealth Strategy raised approximately $12.7 million from approximately 57 investors between 2007 and 2009. The combined amount raised by Altholtz and Wealth Strategy was approximately $30.8 million.
The SEC Complaint Details
The SEC Complaint alleges that in 2008 Altholtz recruited Stevens and his company to serve as the investment adviser for the Adamas and Stealth Funds. Offering materials given to the investors disclosed that Wealth Strategy and Stevens Resource would be paid a management fee of 2.5% monthly based on the Funds’ month-end net asset value. In addition, both Wealth Strategy and Stevens Resource were entitled to collect an incentive fee of 30% of the Funds’ quarterly net profit. The SEC alleges that both Stevens and Altholtz received most, if not all, of those fees.
The most concerning fact, however, is the allegation in the SEC Complaint that Altholtz and Stevens used investor funds to guarantee (and payoff) loans generated by Altholtz’s family trusts made to two companies that both Altholtz and Stevens controlled. All in all, it appears that investor funds were used to guarantee (and eventually pay) notes (with interest rates ranging from 12% to 18%) to Stevens and Altholtz’s companies for millions of dollars. This is in addition to the management and incentive fees generated by Altholtz and Stevens.
Misleading Newsletters Lead Investors Astray
The Complaint filed last week also alleges that both Altholtz and Stevens prepared and approved a number of newsletters sent to investors on a quarterly (and later bi-annually) basis which contained seriously misleading representations. More alarmingly, it appears that a number of new investors decided to invest in the Adamas and Stealth Funds based on the newsletters’ misrepresentations. According to the SEC, some of the inaccuracies contained in the newsletters included:
- Disclosures that an energy drink company was generating profitability to the Funds when in reality that company was generating losses in excess of one million for that quarter.
- Disclosures that a healthcare management company held a substantial amount of cash ($4 million) when in reality that cash position matched the amount the Stealth Fund had recently invested in that company.
- Disclosures that a company—in which both Altholtz and Stevens had an interest—had no issue to repay the “Notes” because of its profitability. This is despite the fact that financial statements for that company showed that it did not have enough cash to repay the $1.4 million in Notes owed to the Stealth Fund. It appears that both Altholtz and Stevens also later alleged in the newsletter that this company would generate over $12 million in revenue when in reality it had generated only $60,000.
It appears that this is not the first time Mr. Altholtz has been in trouble with regulators. For example, in March of 2008, the Colorado Securities Commission issued a cease-and-desist order against Mr. Altholtz and Wealth Strategy for the unregistered sale of securities in that state. Mr. Altholtz ceased to be registered with the Financial Industry Regulatory Authority (FINRA) back in 2006. According to our investigation, Mr. Stevens was never registered with FINRA or the SEC.
Do Not Let Yourself Be a Victim
If you invested in the Adamas Fund or in the Stealth Fund, contact the experienced securities lawyers of Vernon Litigation Group. Our attorneys are currently investigating potential additional wrongdoings by Altholtz, Stevens, Wealth Strategy LC, and the Stevens Resource Group, LCC. We have successfully represented thousands of investors for wrongdoings such as this and are prepared to do so again on behalf of any investor who has fallen victim to investment misconduct. To schedule a free consultation, please call Vernon Litigation Group toll-free at or by (239) 319-4434 at email@example.com.