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A federal judge has indicated he would approve a plan to spread the loss of $24 million among all of the 5,500 people who had retirement accounts at American Pension Services of Riverton, the company taken over by the court earlier this year amid allegations of millions of missing dollars.
U.S. District Judge Robert Shelby indicated at a Wednesday hearing that stretched beyond five hours that he would approve a plan that calls for current clients to hand over 10 percent of the value of their accounts to make up for the shortfall that is blamed on owner Curtis DeYoung.
The Securities and Exchange Commission sued the company and DeYoung in April, alleging he had caused $24 million of clients' money to disappear and that the company was insolvent as a result. DeYoung used the monies for investments with friends and personal expenses, loans and high salaries, according to a lawsuit naming DeYoung and wife Michelle.
Meanwhile, Curtis DeYoung's attorney, Paul Moxley, said DeYoung had reached a settlement with the SEC without admitting wrongdoing but that also anticipated he would be facing criminal charges. The court-appointed receiver in the case, Los Angeles attorney Diane Thompson, has turned over information to the FBI, according to court documents.
Under the settlement, which still needs approval by SEC commissioners and Shelby, DeYoung admitted he was liable for $19 million in missing funds, an amount below a $20 million threshold that could cause several years to be added to any prison sentence under federal guidelines, Moxley said.
In another development, Michelle DeYoung and three daughters of the couple have sought to intervene in the case in order to file suit against the receivership, which they claim has improperly frozen or taken over assets such as homes, a trust belonging to the daughters and Individual Retirement Accounts she is not entitled to.
Michelle DeYoung has filed for divorce from her husband and is entitled to a share of the assets accumulated during their 36 years of marriage, the motion says. Michelle also started and owns American Pension 401(k) Services, which the mother and daughters claim should not be part of the APS case.
American Pension Services was founded in 1982 by the DeYoungs to hold IRAs for clients who want to be able to direct their own investment of retirement funds. Unlike banks and other entities that manage traditional IRAs, clients of APS could direct their investment into a variety of activities, such as loans to others or to purchase real estate.
Shelby heard from lawyers and APS clients about the plan the receiver has proposed that would assess 10 percent from every account held as of April of this year, when the Shelby granted an SEC request to freeze the assets of the company and those of the DeYoungs along with client accounts and to appoint a receiver to take over the operations.
The discussion centered around how to allocate the $24 million loss — what one attorney called "the elephant that must be devoured" — among the various kinds of accounts, some that held cash and some that only held real estate, loans or other kinds of assets.
It would cost several million dollars, if not more, to try to pin losses to specific accounts, and more expensive still if the receiver had to go back to the years before April of this year to try to recover monies from clients who had closed accounts before the SEC acted, the judge said.
Allocating the losses to all present account holders at 10 percent of their current holdings "strikes me as the best alternative of all the bad alternatives before us," Shelby said at the close of the hearing. Ultimately, they might receive even more of their monies back, he said.
The judge said the plan would allow clients to gain control of their assets much quicker than would be possible with a more complex investigation and allocation plan.
APS account holders and attorneys who spoke at the hearing generally objected to the plan based on circumstances that were specific to them or their clients. But the largest number of objections were from those who held real estate in their accounts and said they should not be allocated part of the loss since Curtis DeYoung took only from accounts that had cash in them.
Shelby, however, said the entire operation was fraudulent because it was based on lies or withholding of information from clients.
SEC attorney Daniel Wadley said APS operated "like a Ponzi scheme" that is dependent on a constant influx of new money.
But APS account holder Ran McDonald had another type of question: "Why did it take so long" to detect and act on the fraud?
Wadley said SEC investigators started looking at the company after APS' involvement was noticed in other fraud cases and eventually determined wrongdoing had occurred at the Riverton companies.