Investors are out more than $10 million and a Tucson investment advisor has been ordered to pay nearly $450,000 in restitution and penalties for selling unregistered securities linked to alleged Ponzi schemes.
And that’s just the most recent enforcement action state regulators have taken against scams that have included investments in purported cannabis farms and cryptocurrency schemes.
The Arizona Corporation Commission on Jan. 10 unanimously ordered Tucson investment adviser representative Pamela Hopman and her company, PGH Advisors LLC, to pay restitution of $410,790 and a $35,000 administrative penalty for dishonest and unethical conduct in selling unregistered securities.
The commission also revoked Hopman’s investment adviser representative license and the investment adviser license of her company.
An investigation by the commission’s Securities Division found that Hopman and PGH Advisors sold at least $1.5 million worth of securities from a company called Deeproot and its affiliates to her advisory clients who believed they were buying “life settlement products” — investments backed by life-insurance policies.
The Securities and Exchange Commission in a civil lawsuit filed in August 2021 alleged that Texas-based Deeproot Funds and its owner Robert J. Mueller defrauded two investment funds and nearly 300 people who invested roughly $58 million, calling the company a Ponzi scheme. Deeproot Funds filed for bankruptcy in December 2021.
The commission also found that Hopman, PGH Advisors and another PGH investment adviser representative sold at least $10 million worth of unsecured and unregistered promissory notes, a type of loan purportedly backing construction projects, from Kansas-based Premier Global Corp.
Securities regulators in Kansas and Oklahoma have filed civil lawsuits alleging Premier Global and its principals operated a Ponzi scheme that raised more than $500 million from more than 500 investors in 19 states, including Arizona.
The commission’s Securities Division found that in most cases, Hopman and PGH Advisors did not inform the investors that she or her affiliates were receiving commissions for selling the unregistered investments, creating a material conflict of interest.
In November, the Corporation Commission sanctioned the other PGH investment adviser representative, MaRico Tippett of Tucson, with a 30-day license suspension for failing to disclose a material conflict of interest to his clients. In a consent order, Tippett agreed to pay $28,231 in restitution and a $2,500 administrative penalty.
Six-digit losses
During the commission’s Jan. 10 open meeting, two investors who lost money to Hopman and PGH said the panel’s sanctions were too light.
The approved consent order bars Hopman from reapplying for state licenses or controlling an investment firm until all her restitution and penalties are paid.
But investor Barbara Eisele urged the commission to bar her from holding any kind of investment-related license in the future.
“She made the representation this investment was the best way to meet our goal of protecting our principal investment and that it was safer than stocks,” Eisele said. “I believe it is the responsibility of the Corporation Commission to prevent harm to others.”
PGH investor Gary Hirsch said he and his wife lost $140,000 to investments sold by Hopman and called the ordered restitution “woefully inadequate” given the millions of dollars investors have lost.
Hirsch, 72, said he hoped to retire this year.
“But due to Ms. Hopman’s handling of our money, we’ve now lost $140,000 and will probably have to work another five years,” he said.
Mark Dinell, director of the ACC’s Securities Division, said he sympathized with the investors, but the money paid to Deeproot and Premier Global is tied up in the pending federal and state lawsuits.
State law doesn’t allow the ACC to permanently bar an investment adviser from licensure, Dinell said, but he added that if Hopman tried to apply for a license in the future, “that would be a very hard hill for her to climb.”
An attorney representing Hopman painted her as a victim of the investment companies whose products she sold and said Hopman sold her house to make a $200,000 payment toward the restitution and penalties.
“She and her family invested more than $300,000 in these entities and her money’s gone, too,” attorney Alan Baskin told the commission. “This is not something Ms. Hopman feels good or happy or joyful about, by any stretch of the imagination.”
Baskin did not respond to a request for further comment.
Dinell said in an interview he could not say how exactly how many investors lost money to the investments sold by Hopman because that was not made part of the public record, but the record shows at least 10 sales of Deeproot products.
The restitution money will go into an account managed by the Attorney General’s Office, which will distribute it to affected investors, he said.
Dinell said he was unsure of the prospects for further recovery from the Deeproot and Premier Global cases, but typically in those cases, an appointed receiver contacts affected investors.
Cannabis to crypto
In the past few years, the state Securities Division has won sanctions against sellers of an array of unregistered securities in Arizona:
In December, the Commission ordered Richard J. Daratony of Tucson to pay a $20,000 administrative penalty for committing securities fraud by selling unregistered investment contracts in a purported cannabis farm in California through an online ad on Craigslist.
In October, the Corporation Commission ordered hedge fund manager Christopher S. Walkup of Scottsdale and his affiliated company Wealthcorp, LLC to pay $1.2 million in restitution and $296,000 in administrative penalties for defrauding investors through the sale of penny-stock shares in a pharmaceutical company and a company that provides websites and marketing to cannabis companies. Walkup has appealed the commission’s decision to Maricopa Superior Court.
In September, the commission ordered Jonathan Sifuentes Saucedo of Mexico, who was not registered to sell securities in Arizona, to pay $70,000 in restitution and a $15,000 administrative penalty for defrauding investors with a cryptocurrency investment program he pitched through churches and Spanish-language radio ads.
In September 2021, Kansas-based AE Wealth Management LLC agreed to pay more than $1.1 million in restitution to more than 200 Tucson-area clients to settle state charges involving the sale of military pension benefits as investments. The commission found that the company misled investors by failing to disclose the company’s ties to Smith & Cox LLC, a Tucson firm that was subject to a state enforcement action.
In October 2020, the commission ordered Smith & Cox and its principals to pay restitution of about $2.6 million and a $105,000 fine, for its sale of so-called “income-stream” investments in the pensions of military members. The company lost an appeal of the penalties in December 2021.
Protecting your money
Dinell, who has been with the Corporation Commission for more than 20 years and became Securities Division director in 2019, said his division files about 20 to 30 enforcement actions annually.
In 2022, the division filed 20 actions and the commission entered 30 decisions on prior cases, he said. Besides investment advisers and adviser representatives, the agency registers and regulates securities dealers and salespeople in the state.
Where fraud may rise to the criminal level, the Securities Division refers cases to the Attorney General or the appropriate county attorney, Dinell said.
According to the Securities Division, common investment scams in Arizona include: affinity fraud, where scammers gain trust through members of a group, like a church congregation; telephone boiler-room pitches; foreign-currency exchange schemes; government imposters; oil and gas scams; Ponzi or pyramid schemes; precious-metal frauds; so-called “prime-bank” schemes involving investments in international bank notes; real estate scams; and life-settlement or viatical schemes.
With a plethora of new frauds fueled by online pitches, the general rule of thumb to avoid investments you don’t understand holds true, Dinell said.
Dealing with an adviser or broker you trust is important, but Hopman’s case shows that doesn’t always guarantee safety, he said.
“You have to get the documents and you have to read them, and I know that’s a pain but if you read them and ask the person selling you questions, that could or should bring up red flags,” Dinell said, noting that the Deeproot documents described its investments as “illiquid” — difficult to sell.
The Corporation Commission hosts a “fraud prevention center” page on its website at tucne.ws/azfraud, featuring tips on how to spot common fraudulent investment schemes.
The U.S. Securities and Exchange Commission offers tips to avoid investment fraud and a database of licensed investment professionals, including details on licenses, professional experience and enforcement actions, at investor.gov.
Learn about trending investment-fraud schemes and resources Arizona and U.S. regulators offer to help investors avoid trouble.
