SALT LAKE CITY (CN) - A retirement fund administrator bilked 5,400 investors of $23 million through "high-risk investments" in friends' failed mortgage and loan companies, a class action claims.
Lead plaintiff Darlene Oliver sued American Pension Services and Curtis L. DeYoung, of Riverton, in Salt Lake County Court.
Oliver claims the defendants commingled clients' funds and embraced high-risk investments, while keeping mum on the "inflated" values of clients' accounts.
DeYoung launched American Pension Services in 1982.
APS, a so-called third-party administrator of retirement accounts, is based in Riverton.
The company separates itself from other IRA custodians, Oliver claims, by promoting customers' ability to purchase non-traditional assets within their accounts.
APS customers opened a variety of retirement accounts, including IRAs, simplified employee pension plans, simple plans and Roth IRAs. DeYoung tracked down potential clients at investment seminars, the complaint states.
As of December 2013, APS allegedly had 5,488 customers with accounts valued at $351,795,430.30.
Total cash balances on APS customer account statements were to equal cash on deposit in APS master trust accounts, Oliver says.
However, "Upon information and belief for the year ending Dec. 31, 2012, the cash balance in the master trust accounts at First Utah was $23,879,948," the 29-page complaint states.
"Upon information and belief customer account statements prepared and sent out by APS indicate that the total customer cash that should have been in the master trust accounts on Dec. 31, 2012 was $45,949,847. The master trust accounts had a shortage of $22,069,899 in customer funds."
Oliver claims the discrepancies continued.
"Upon information and belief for the year ending Dec. 31, 2013, the balance in the master trust accounts held at First Utah was $34,553,402.
"However, upon information and belief, customer account statements prepared and sent out by APS indicate that the total customer cash that should have been in the master trust accounts on Dec. 31, 2013 was $57,311,527. The master trust accounts had a shortage of $22,758,125 in investor funds. The amount of the missing customer funds had increased by nearly $700,000 from 2012 to 2013," the complaint states.
The missing money, Oliver says, points to DeYoung's unsecured investments in his friends' failed mortgage and loan modification businesses.
According to the complaint: "Numerous APS customers hold promissory notes issued through a 'friend' of Curtis DeYoung ('Friend A') or Friend A's entities in their APS accounts.
"Upon information and belief this Friend A and DeYoung are close business associates, and DeYoung recommended Friend A promissory notes to APS customers.
"APS customers hold promissory notes from several Friend A entities, including, but not limited to: Innovative Services LLC, Innovative Equity Partners LLC, Prime Utah LLC, and Sawtell Capital LLC.
"Friend A's businesses vary from residential mortgages, loan modification and debt settlement to single purpose investment entities.
"Upon information and belief, in addition to individual investments made by APS customers, DeYoung directly invested APS funds with Friend A or Friend A' s various business entities without disclosing to customers this use of customer funds.
"Upon information and belief, all of the investments DeYoung made for APS customers with Friend A or his entities were unsecured.
"Friend A's business ventures never generated a profit and since approximately 2010, all promissory notes issued by Friend A to APS and APS customers are in default.
"Upon information and belief, in 2010, DeYoung agreed to forgive all investments APS made with Friend A, even though the funds invested were not DeYoung's to forgive the debt."
Other investments widely held in APS customer accounts include National Note of Utah LC and Management Solutions Inc., Oliver says. Investments in those entities allegedly continued to be held at full investment value long after they became worthless or significantly reduced in value.
DeYoung also allegedly invested $2.8 million in an office building in Wichita, which was lost.
Oliver claims she transferred $55,000 from a Roth IRA account at Fidelity to APS, in 2009.
She learned in April that her assets with APS had been frozen, as the company was placed under receivership at the request of the Securities and Exchange Commission.
During sworn testimony, DeYoung refused to answer any questions regarding the missing $23 million, the complaint states.
Oliver, of Long Beach, Calif., seeks $50 million in punitive damages, plus an injunction and accounting for securities fraud, misappropriation of funds and emotional distress.
She is represented by Steven Christensen with Christensen Young & Associates, of Sandy.
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