CHICAGO (CN) - Comprehensive Capital Management "buried its head in the sand" while an employee swiped $14 million from clients, a woman claims in court.
Donna Carroll sued Comprehensive Capital Management in Federal Court. She claims Timothy J. Roth, who is not a defendant in this case, stole $142,700 from her, Caroll says. She cites a March 2011 SEC complaint accusing Roth of stealing more than $6 million from mutual funds.
Carroll claims that in 2004 she entered into an Investment Management Agreement with Northwest Quadrant Advisory Group, Comprehensive's predecessor, which assigned Roth to manage her accounts.
"(I)n 2003, while employed by Comprehensive, Roth formed a company named KeyOp Exercise, Inc. Roth established accounts for KeyOp at several financial institutions, including TD Ameritrade in June 2003," Carroll's complaint states.
KeyOp Exercise is a defendant in the March 2011 SEC complaint against lead defendant Roth.
Carroll's complaint continues: "Between May 2004 and November 2010, Roth fraudulently removed funds from the TD Ameritrade accounts of his individual mutual fund clients' investment plans, including plaintiff's, for Roth's own personal and business use.
"Beginning in or about August of 2006, and continuing through 2011, Roth fraudulently executed unauthorized transfers of mutual fund shares from his clients' TD Ameritrade accounts, including plaintiff's, to the KeyOp account at TD Ameritrade, which Roth controlled.
"Roth also converted shares of mutual funds belonging to certain clients.
"Between August 2006 and March 2011, Roth fraudulently transferred, liquidated and removed mutual fund shares from the TD Ameritrade accounts of his mutual fund option plan clients for Roth's own personal and business use, thereby resulting in monetary loss to the clients, including plaintiff, of over $14,000,000."
Yet as early as 2003, Carroll says, TD Ameritrade notified Comprehensive that Roth was transferring clients' funds into his own accounts.
"TD Ameritrade's notice to Comprehensive that it was concerned about Roth's practice of transferring client funds into accounts that he owned created a duty requiring Comprehensive to investigate and monitor the situation," Carroll claims. "Notwithstanding that duty, Comprehensive took no steps to investigate the suspicious ownership transfers or to ensure that Roth was no longer controlling KeyOp and its accounts. On information and belief, Comprehensive never audited or investigated the KeyOp account, despite Comprehensive's knowledge that Roth was controlling KeyOp, that Roth was transferring client funds into KeyOp, that the practice violated Comprehensive's own policies, and that such activity is a red flag for fraud and other impropriety. Instead, Comprehensive buried its head in the sand, choosing to ignore the glaring red flags."
She adds: "Comprehensive should have implemented internal controls to protect against the possibility of misappropriation, or at a minimum, investigated the ownership transfers of KeyOp to ensure that Roth was not controlling KeyOp."
After the SEC sued Roth, a receiver was appointed to take control of all his assets, Carroll says.
The SEC sued Roth, KeyOp Exercise, Mezolink,Inc., VCN Celect.org LLC, and Vcomm Networks of Canada.
Roth pleaded guilty to mail fraud and money laundering in October 2011, according to Carroll's complaint.
She seeks damages for fraudulent misrepresentation, aiding and abetting conversion, breach of fiduciary duty, breach of contract, unjust enrichment, and negligence.
She is represented by Daryl Schumacher with Kopecky, Schumacher & Bleakley.
Subscribe to Closing Arguments
Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.