Malta-headquartered Standard Advisory Services Limited (SAS) and two of its North Carolina-based executives, Gregory Lindberg and Christopher Herwig, have been charged by the Securities and Exchange Commission (SEC) for defrauding clients out of more than $75m (£64m, €74.8m).
According to the regulator’s complaint, between 2017 and 2018, the duo used SAS to engage in numerous transactions and misappropriated over $57m in client funds.
The US watchdog said that throughout the duration of the scheme, SAS collected over £21.1m in advisory fees from the victims, which Lindberg gave to himself or his affiliated businesses.
Altogether, Lindberg “wrongfully obtained over $75m from the scheme”, the SEC said.
Details
The US regulator alleged that Lindberg, Herwig, SAS and related entities repeatedly recommended and entered into transactions that were not disclosed to and were not in the best interests of their clients.
In 2017, Lindberg acquired four insurance companies based in North Carolina and a reinsurance trust to gain control over “hundreds of millions of dollars in premiums from their policyholders”.
The funds were supposed to be used to pay for insurance claims, but Lindberg treated them as his own assets. He then directed the insurance companies to enter into investment advisory services agreements with SAS, which is based in Malta but also registered with the SEC.
Following the agreements, from July 2017 throughout 2018, the duo and the advice firm breached their fiduciary duties, “acted in their self-interest and raided their advisory clients’ assets through a series of fraudulent and improper schemes”, the SEC alleged.
Such schemes included advising clients to enter into a complex set of transactions “to mask Lindberg’s misappropriation of their funds”. More specifically, the duo advised the insurance companies to sell their interests in certain special purpose vehicles affiliated to Lindberg and then repurchase the same investments through a different vehicle at a higher price.
The SEC said that Lindberg pocketed the difference after the repurchase, which amounted to around $57m. The SEC said it aware of at least 13 transactions of this kind.
Another scheme saw Herwig and Lindberg funnel millions of dollars of cash to Lindberg-owned entities by “loading the balance sheet” of another SAS advisory client, namely Private Bankers Life & Annuity Co (PBLA), with “prohibited and/or sham investments”.
Financially compromised
The SEC claims that in each scheme, Lindberg, Herwig and SAS violated their fiduciary duties to their clients by fraudulently diverting more than $57m and failing to serve the best interests of their customers.
Throughout the fraud, Herwig received annual salaries ranging from $947,000 to $1.6m, while Lindberg funnelled millions of dollars to his personal cash accounts and directed SAS to loan more than $35m to companies he owned and controlled.
SAS was also told to issue dividends – paid into a shell company owned by Lindberg – totalling around $12.9m.
As a result of the schemes, the long-term liquidity of the insurance companies’ investment portfolios was compromised, and they were placed into receivership, while PBLA was forced to file for bankruptcy.
Both Lindberg and Herwig declined to testify during the SEC investigation pleading their fifth amendment right against self-incrimination.
The regulator has now charged the duo and SAS with violating antifraud provisions and seeks disgorgement plus pre-judgement interest, penalties and permanent injunctions.
“We allege a massive fraudulent scheme, involving unique financial structures and various complex investments, orchestrated by the defendants for their own benefit over their advisory clients’ benefit,” said Osman Nawaz, chief of the SEC’s division of enforcement’s complex financial instruments unit.
“Today’s filing demonstrates that the SEC will take action to protect investors from investment advisers who attempt to evade fundamental fiduciary responsibilities.”
SAS and Lindberg were also named and shamed in 2021 by the International Consortium of Investigative Journalists in the Paradise Papers leak.
