SEC Delivers Coup De Grace to Barred Wisconsin Advisor

29 Jan    Investing News

Edward Earl Matthes, barred last year by a Wisconsin regulator for selling a fake investment to two dozen mostly elderly customers who lost $2.4 million, agreed on Tuesday to settle fraud charges and pay damages and penalties.

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The Pewaukee, Wisconsin, former broker, who affiliated for the last seven years of his 20-year career with Mutual of Omaha Investors Services, convinced 26 clients over six years to invest in a fictitious “safe fixed investment” yielding at least 4% a year, the Securities and Exchange Commission charged in a fraud complaint that Matthes simultaneously settled.

The purported investment sold from his one-person branch office did not exist.

Some customers financed their “purchases” by selling variable annuity contracts Matthes had sold them, incurring  surrender fees—and by selling life insurance, real estate and securities managed by a third-party investment advisor, the SEC charged. Some also transferred inheritance proceeds to him, the regulator said.

Matthes, 49, collected about $1.4 million for the “investment,” and stole $1 million more by making unauthorized sales and withdrawals from some customers’ annuities, according to the SEC. He typically gave customers partially completed application forms before selling their annuities, and surreptitiously included the routing and account number for his personal bank account on some forms, the SEC said.

He also checked a box giving him authority to work directly with the annuity company, and put his personal bank account information on some withdrawal forms signed by certain customers.

Matthes used $2.17 million of the proceeds to pay child support, credit card, mortgage and car debt, and for luxury items and home renovation expenses, the SEC said. To keep his scheme alive from April 2013 though his dismissal by Mutual of Omaha in March 2019, he made Ponzi-like payments of about $170,000 to some customers, it said.

He was outed when a customer in March 2019 complained to Finra about an account statement that appeared to be fake. Finra barred him that month for failing to cooperate with its investigation, and the state of Wisconsin permanently barred him in May for creating fictitious investments and account forms.

Matthes on Tuesday consented to the entry of the SEC’s judgment without admitting or denying its allegations. The settlement requires him to pay disgorgement, prejudgment interest, and penalties in amounts to be determined by the federal district court in the Eastern District of Wisconsin at a later date, the SEC said.

The broker, who began his career with AAL Capital Management and also worked at Thrivent Investment Management and MML Investors Services prior to joining Mutual of Omaha in 2012, could not be reached for comment.

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