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Investment Adviser Dissolves $155 Million Funds in SEC Fraud Case

March 18, 1992

LOS ANGELES (AP) _ An investment adviser accused of inflating the value of two investment funds to $155 million nearly overnight has agreed to dissolve the companies, regulators said Tuesday.

The Securities and Exchange Commission filed fraud allegations against V. Thayne Whipple II, whose Public Funding Group managed the American Vision Funds and Public Funding Portfolios.

The suit says unidentified shareholders in the funds attempted to use them as collateral to borrow at least $18.6 million in cash from brokerages in at least eight states.

″It seemed to be a concerted effort,″ said Lori Richards, assistant administrator for enforcement in the SEC’s Los Angeles office. She said investigators so far have turned up no losses by brokers.

The funds, included in The Wall Street Journal’s list of mutual funds, zoomed from zero to $155 million in purported assets since they were started last December, the SEC alleged.

In fact, their shares were ″virtually without worth,″ Ms. Richards said.

Whipple, who didn’t immediately return a telephone call, agreed to liquidate the funds within 30 days. He still faces undetermined civil fines if the SEC prevails in a fraud lawsuit filed in Los Angeles federal court Tuesday and could be forced to repay any illicit gains.

It is possible that some of the shareholders knew the value of the shares were inflated when they sought margin loans at brokerages, ″But we have no proof of that at this point,″ said Sandra J. Harris, the SEC’s branch chief of enforcement in Los Angeles.

The SEC said the funds were supposed to have invested in securities that could readily be resold and with a clear value. In fact, its only assets were some thinly traded stock and promissory notes from the shareholders, which were listed at face value, Ms. Richards said.

In addition, the assets were kept by the funds’ attorney, instead of by Chemical Bank of New York as fund prospectuses promised, the SEC said.

The SEC also alleged bookkeeping violations and that the funds failed to maintain fidelity bond coverage against larceny and embezzlement for individuals with access to the funds’ assets.

Without admitting guilt, Whipple agreed to refrain from committing the alleged violations in the future. The assets of the funds have been frozen and he has been ordered not to destroy documents.

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