The Securities and Exchange Commission today charged recidivists Tellone Management Group, Inc. (TMG), a registered investment adviser, and its president Dean Tellone with fraud and breach of fiduciary duty in connection with a scheme to hide information from investors in a TMG-managed mortgage fund. The SEC also charged TMG's vice president of investments Steven Wolfe and Tellone's friend Robert Gumerman for their roles in the fraudulent scheme.

According to the SEC's complaint, from 2015 through the present, Tellone and TMG concealed material information from TMG's mortgage fund investors, many of whom were advisory clients, and from two successive audit firms in order to hide a significant loss in the mortgage fund. The complaint alleges that Tellone instructed Gumerman to mislead the auditors about the status of a $1 million loan the fund made to Gumerman and his wife that had been discharged in bankruptcy proceedings. As alleged, by lying to the auditors and hiding the loss, Tellone was able to inflate the mortgage fund's reported returns. The complaint also alleges that as part of the scheme, Tellone and Gumerman entered into a sham transaction where they purportedly restructured the discharged loan but entered into a secret side deal agreeing to write off the restructured loan. According to the complaint, the side deal provided other favorable terms for the Gumermans at the expense of the mortgage fund and its investors, and rendered the mortgage fund's financial statements, offering documents, and information within its Form ADVs materially misleading. The complaint further alleges that Wolfe aided and abetted the scheme by knowingly providing misleading information to the mortgage fund's auditors.

The SEC's complaint, which was filed in the Central District of California, charges Tellone and TMG with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 207 of the Investment Advisers Act of 1940; charges TMG with violating, and Tellone with aiding and abetting TMG's violations of, Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder; charges Wolfe with aiding and abetting TMG and Tellone's violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Advisers Act; and charges Gumerman with violating Sections 17(a)(1) and 17(a)(3) of the Securities Act and Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder. Without admitting or denying the allegations in the complaint, Gumerman has consented to the entry of a final judgment, subject to court approval, permanently enjoining him from violating the antifraud provisions of the federal securities laws. The SEC's litigation against the other defendants will proceed, with the SEC seeking disgorgement of ill-gotten gains with prejudgment interest, civil penalties, and permanent injunctive relief, among other remedies.

The SEC's investigation was conducted by Yolanda Ochoa, William Rosenthal, Maria Rodriguez, and supervised by Finola H. Manvelian. The SEC's litigation will be led by Amy Jane Longo.  The SEC's examination that led to the investigation was conducted by William Rosenthal and Joshua Bauder, and supervised by Yanna Stoyanoff and Charles Liao.