WASHINGTON (CN) – The owner of Cornerstone Capital Management put $15 million of her clients’ money into Ponzi scams and charged them more than $540,000 in fees for it, the SEC says. The people who ran the scams were convicted of criminal fraud, and now the SEC has sued Cornerstone and its owner Laura Jean Kent of Redwood City, Calif.
“From 1997 to 2004, respondent Laura Kent and her investment advisory firm, respondent Cornerstone Capital, invested $15 million of client funds in five investments, each of which produced disastrous results for the clients,” according to the SEC’s cease and desist order. “Four of the five investments bore the hallmarks of classic Ponzi or prime bank schemes, and the promoters of those schemes were subsequently convicted of fraud charges. Regardless of whether Respondents knew of the fraudulent nature of these investments at the outset, over time Respondents became aware of substantial evidence demonstrating that the value of the investments was severely impaired.
“Despite this knowledge, Respondents have continued to issue periodic client account statements in which they list the ‘market price’ and ‘total market value’ of these investments as remaining unchanged from their original cost. Respondents also have made numerous material misrepresentation and omissions about the status of the investments, including the fact that some of the promoters were convicted of fraud. Respondents knew, or were reckless in not knowing, that the values of the investments had been impaired, yet they continued to charge a 1%-assets-under-management fee based on the initial cost of the failed investments, collecting at least $547,035 in illegitimate fees between 2003 and 2007.”
Kent, 59, owns and is president of Cornerstone Capital. She has an MBA from Stanford and five securities licenses, according to the SEC complaint.