Investment Advisor and Broker-Dealer Fraud, Misrepresentation and Mismanagement Litigation and FINRA Arbitration Attorney, Russell L. Forkey, Esq.
SEC CHARGES INVESTMENT ADVISER BRENDA A. ESCHBACH WITH MULTI-YEAR MISAPPROPRIATION OF CLIENT FUNDS
Securities and Exchange Commission v. Brenda A. Eschbach, No. SA CV 12 0244 (AG) (JPRx) (C.D. Cal.).
The U.S. Securities and Exchange Commission recently announced, it filed a civil injunctive action in the U.S. District Court for the Central District of California charging Brenda A. Eschbach of Tustin, California with securities fraud, investment advisory fraud, and acting as an unregistered broker-dealer. In its complaint, the Commission alleged that Eschbach misappropriated over $3 million in investment advisory client funds from 2003 through 2009.
The Commission’s complaint alleges that Eschbach violated Section 17(a) of the Securities Act of 1933(Securities Act), Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 (Exchange Act), Exchange Act Rule 10b-5, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (Advisers Act) and seeks a permanent injunction against future violations of those provisions, disgorgement of her ill-gotten gains, with prejudgment interest thereon, and a civil money penalty.
The complaint alleges that Eschbach began to misappropriate client funds while operating a franchise of a large investment adviser and broker-dealer and that the theft of client funds continued after Eschbach founded Aventine Investment Services, Inc., a now-defunct California corporation. The complaint further alleges that Eschbach did not make investments as directed by her clients, instead stealing their funds and using them to pay for, among other things, living expenses, business expenses, credit card payments, Mercedes lease payments, private school tuition for her daughter, and trips to Las Vegas and Atlanta. The complaint alleges that Eschbach concealed her misappropriations by issuing and mailing false and misleading account statements to those clients whom she had defrauded.
Without denying the Commission’s allegations, Eschbach has consented to entry of a proposed final judgment: (1) permanently enjoining her from violating Section 17(a) of the Securities Act, Sections 10(b) and 15(a) of the Exchange Act, Exchange Act Rule 10b-5, and Sections 206(1) and 206(2) of the Advisers Act; and (2) ordering disgorgement of $2,561,873, payment of which would be deemed satisfied dollar for dollar by criminal restitution ordered in a related criminal proceeding, U.S. v. Brenda A. Eschbach, 8:10-cr-00017-JVS (C.D. Cal.). Entry of the proposed final judgment is subject to approval by the U.S. District Court for the Central District of California.
In the related federal prosecution, Eschbach entered a plea of guilty on September 30, 2011 to one count of mail fraud and one count of money laundering. She is currently awaiting sentencing.
Eschbach has also consented to the issuance of a Commission Order barring her from association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent, and from participating in any offering of a penny stock. Issuance of such an Order is predicated on entry of the proposed injunction against Eschbach and her plea of guilty in the federal prosecution.