Federal securities regulators filed a lawsuit Friday accusing a Rancho Santa Fe financial advisory firm and two of its executives of making false statements to investors, among other deceptive acts.
The legal action alleges Cornerstone Acquisition & Management, Chief Executive Derren Lee Geiger and Chief Financial Officer She Hwea Ngo engaged in a scheme to deceive investors in two of Cornerstone’s private funds that invested in oil and gas ventures.
The legal action also claims Cornerstone provided false information about Cornerstone’s ownership structure to investors to retain and place clients, and Cornerstone and Ngo created inaccurate books and records.
The US Securities and Exchange Commission seeks a permanent injunction against future violations of securities laws, disgorgement of at least $3.3 million in advisory fees and unspecified civil fines against all parties.
Reached late Friday, Geiger said the SEC’s claims are false. “We look forward to defending ourselves,” he said. “We think the allegations by the SEC are without merit. We intend to vigorously defend our firm.”
The alleged false statements to investors involved funds for which Cornerstone served as the advisor and received management fees from 2011 to 2021 — including a fund based in Bermuda for US tax exempt investors and non-US investors.
The Bermuda fund invested in oil and gas royalties and other instruments through promissory notes. The SEC alleges Cornerstone falsely claimed in written materials that these loans were secured by collateral, which they weren’t.
That falsehood “fundamentally mischaracterized the nature and risks of an investment in the fund,” according to the lawsuit.
In early 2017, the prior owner of Cornerstone died, and investors expressed concern about the ownership structure going forward. The SEC alleges that Geiger and Ngo each acquired an ownership stake in the firm from the prior owner’s estate in 2018.
But in communications with investors and in reports filed with the SEC, Geiger was represented as Cornerstone’s sole owner.
The SEC launched a compliance examination of Cornerstone in July 2019, which uncovered weaknesses in its compliance controls.