The Securities and Exchange Commission has charged a Newhall-based investment advisory firm, Criterion Wealth Management Insurance Services, Inc., and its former owners, Robert A. Gravette and Mark MacArthur, both graduates of The Master’s College (now The Master’s University), with defrauding clients in a $16 million investment scheme from 2014 to 2017.
The SEC complaint, a civil enforcement action filed in the U.S. District Court for the Central District of California, alleges that Criterion and then-co-owners Gravette and Mark MacArthur breached their fiduciary duty and defrauded their advisory clients by failing to disclose significant financial conflicts of interest when recommending investments in private real estate investment funds, or REITS.
Robert A. Gravette. | Photo: Criterion Wealth Management Insurance Services.
The complaint alleges that Gravette and MacArthur recommended that their advisory clients invest more than $16 million in four private real estate investment funds without disclosing that the fund managers had paid the pair more than $1 million, which was on top of the fees the defendants were already charging their clients directly.
The complaint further alleges Gravette and MacArthur were motivated to keep their clients invested in the funds, rather than allocate their capital elsewhere, because the additional side compensation was recurring and depended on Criterion’s clients remaining invested.
For two of the funds, this undisclosed compensation arrangement resulted in investment losses for the defendants’ advisory clients.
For those alleged actions, the SEC’s complaint charges Criterion, Gravette and MacArthur with violating the antifraud provisions of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.
The SEC’s complaint further charges Criterion and Gravette with violations of Section 207 of the Advisers Act, and Criterion with violations of Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder.
Mark MacArthur, former co-owner, Criterion Wealth Management Insurance Services. | Photo: via LinkedIn.
The complaint also charges Gravette and MacArthur with aiding and abetting Criterion’s violations of Sections 206(1) and 206(2) of the Advisers Act and Gravette with aiding and abetting Criterion’s violation of Section 207 of the Advisers Act.
“The SEC seeks permanent injunctions prohibiting future violations of the federal securities laws and an order requiring defendants to disgorge their ill-gotten gains with prejudgment interest thereon, and imposing civil penalties,” the complaint reads.
Until September 26, 2018, Criterion was registered with the Commission as an investment adviser. Criterion is currently registered as an investment adviser in California and Idaho, according to the SEC complaint.
Gravette, age 54, resides in Santa Clarita. At present, he is the sole owner and president of Criterion. From 2014 through 2017, Gravette and MacArthur were 50/50 co-owners of Criterion, and Gravette was Criterion’s chief compliance officer.
Gravette has been a registered representative of the broker-dealer at which Criterion investment advisory clients opened brokerage accounts since November 2006. Gravette holds FINRA Series 7, 24, 63, and 65 licenses.
MacArthur, age 52, resides in Newhall. His father, Dr. John F. MacArthur, married wife Patricia in 1963, according to public records.
“After graduating with a degree in Communication, he was drafted by the St. Louis Cardinals in the eighth round of Major League Baseball’s First-Year Player Draft,” MacArthur’s Hall of Fame webpage entry reads. “He spent two years in the Cardinal organization before moving on to Minnesota where he spent one season (1992) before ‘hanging them up’ for good.
“MacArthur moved back to the Santa Clarita Valley in 2003. … A year later, he founded Criterion Wealth Management with TMC alum Bob Gravette,” the bio reads.
From 2004 to mid-2016, MacArthur was Criterion’s co-owner and chief investment officer. In June 2016, MacArthur became an independent contractor for, but remained associated with, Criterion.
At present, MacArthur is the president, managing member and chief compliance officer of a state-registered investment adviser, M2 Financial LLC, which he formed after leaving his employment with Criterion in mid- 2016.
Like Gravette, MacArthur has been a registered representative of Broker-Dealer since November 2006. MacArthur holds FINRA Series 7, 24, 63, and 65 licenses.
Robert Gravette’s Twitter feed’s second to last entry, on April 28, 2017:
“I count all things to be loss in view of the surpassing value of knowing Christ Jesus my Lord” Phil 3:8 https://t.co/QQeousuSrW
The SEC’s investigation was conducted by DoHoang T. Duong and supervised by Spencer Bendell of the Los Angeles Regional Office. The examination that led to the investigation was conducted by Kelly Kibbie and supervised by Kent Woo and Sang W. Lee.
The case was filed as Securities and Exchange Commission v. Criterion Wealth Management Insurance Services, Inc., Robert Allen Gravette, and Mark Andrew MacArthur, No. 2:20-cv-01402, in U.S. District Court for the Central District of California on February 12, 2020.
The litigation will be led by Donald W. Searles and supervised by Amy J. Longo.
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