Articles Posted in Registered Investment Advisors

Stoltmann Law Offices previously posted about Scott Wayne Reed, former broker at Wells Fargo Advisors, selling away to his customers, including customers of Wells Fargo. On December 15, 2020, the Arizona Corporation Commission filed a “Notice of Opportunity for Hearing Regarding Proposed Order to Cease and Desist, Order for Restitution, Order for Administrative Penalties, Order for Revocation and Order for Other Affirmative Action” against Reed, his wife, Sarah Reed, Pebblekick, Inc. and Don K. Shiroishi, the Chief Executive Officer and President of Pebblekick.

According to the ACC’s notice, Mr. Reed sold at least $3.5 million of investments in short-term, high-interest notes issued by Pebblekick. Mr. Reed sold these notes as offering an annualized rate of return of sixty-percent (60%). In turn, Pebblekick paid at least $191,340 to Reed. He sold these notes to clients as “100% safe” investments and represented that he also invested in Pebblekick. He went as far as personally guaranteeing $100,000 of the $200,000 investment made by one investor.Reed also sold other outside investment to customers, which he alleged were connected to Pebblekick, including but not limited to Precision Surgical, Mako Studio, and Ascensive Creator.

Reed was a registered representative of Wells Fargo Advisors at the time that he sold this investment, but did not disclose that he was selling notes in Pebblekick or that he received nearly $200,000 in commissions and fees for selling Pebblekick. According to the ACC, “when Reed’s firm reported him for potentially selling away and the Securities Division requested Reed to provide information and documents concerning the allegation, Reed impeded the Division’s investigation by providing responses that were false, incomplete, and misleading.”

Stoltmann Law Offices, P.C. continues to investigate, file, and prosecute cases on behalf of investors that were burned in the volatility spike from early February 2018, including the Frontier Permo Fund. A few mutuals funds, like LJM Preservation and Growth Fund which invested in uncovered S&P 500 index options, were absolutely crushed in a matter of hours as the United States equity markets swung hundreds of points in minutes, sending the VIX into chaos and creating havoc for those holding options exposed to this volatility. Many other investments, including hedge funds and private placement funds, also had shocking losses in reaction to this volatility spike. One of those private funds was the Frontier Permo Fund.

The Permo Fund, offered in several iterations like the Esulep LLC Permo Fund, (Esulep is the name of the company’s CEO – John Peluse – spelled backwards, how clever) or the Frontier Permo Fund, LLC. Whatever the name, Esulep Management LLC has at all times been the manager and owner of the fund company. Permo Fund markets itself as an absolute return, pooled investment fund utilizing a proprietary trading strategy to maximize value and performance for its investors.  The fund generally invested in index options in February 2018, when the volatility spike caused serious dislocation in the market for S&P 500 index options. So much money had piled into short-VIX related options, that those same investors tended to be long the S&P 500. Because of Permo Fund’s exposure to S&P 500 index options, amongst other issues, the Permo Fund saw whipsaw losses of approximately 36% in days.

Frontier Wealth Management, a fiduciary Registered Investment Advisory firm headquartered in Kansas City, Missouri, contracted with the Permo Fund in 2017 to raise capital for a pooled investment vehicle for their advisory clients to access the Permo Fund. According to a Form D filed with the Securities and Exchange Commission, this private offering raised at least $27,900,000 from 148 investors, all likely fiduciary clients of Frontier Wealth Management. This offering was dated March 13, 2017 and less than a year later, the fund plummeted.  Clients of Frontier Wealth Management who were sold private placement interests in the Frontier Permo Fund may have claims to pursue against Frontier to recover those losses.

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