SEC Charges Broker With Theft From Pension Plan

by Dorsey & Whitney LLP

The Commission frequently brings actions in which the defendant is charged with misappropriating investor funds. Typically those cases center on an offering fraud in which the defendant sold investors securities using false statements to secure the investment funds which were then diverted to the personal use of the defendant. The Commission’s most recent misappropriation case does involve a broker and the theft of investor funds. In this instance, however, there was no offering. Rather, a registered representative facilitated the sale of a company to a friend, was paid a fee for his services and then helped himself to the investor money in the corporate pension plan. SEC v. Jumper, Civil Action No. 18-cv-02259 (W.D. Tenn. Filed Apr. 17, 2018).

Defendant John Jumper was the CEO of, and a registered representative at, his wholly-owned broker-dealer, Alluvion Securities. He was also the President and an investment adviser representative of Alluvion Investments. The firms were located in the Memphis, Tennessee area.

In 2006 Mr. Jumper was retained to assist with the sale of Snow Shoe Refractories LLC, a refractory products manufacture based in Clarence, Pennsylvania. Mr. Jumper marketed the firm to an acquaintance residing in Sarasota, Florida. The transaction took place in February 2007 at a purchase price of $8.2 million. Mr. Jumper was paid a $250,000 commission.

As part of the transaction New Owner assumed responsibility for the administration of the Snow Shoe Pension Plan. It has assets of about $8.3 million, held at a local bank. The plan was underfunded by about $1.8 million.

Despite never holding a position at Snow Shoe, or having any authority over the company or its pension plan, shortly after the deal closing, Mr. Jumper began forging a series of documents regarding the pension plan. He used those documents to move the pension plan assets to a different financial institution.

Eight years later, in 2015, Mr. Jumper offered to provide financing for a deal involving a group of his business associates who were seeking to acquire American Tubing Arkansas, LLC. Using forged documents he took $3 million from the Snow Shoe pension plan and made it available to the group to finance the deal. In return the acquisition group executed a 10 year promissory note at 8% in favor of the pension fund. Mr. Jumper had a fee paid to his broker-dealer of 3% of the transaction price or about $540,000 and an ongoing $40,000 monthly “monitoring fee.”

Later in 2015 Mr. Jumper took another $2 million from the pension fund, again using forged documents. This time he executed documents making him a “successor trustee” to a new trust he created called AIF II. The funds were transferred to this entity. The pension plan was provided a note for deferred 8% interest per annum for ten years.

In early 2016 the Snow Shoe Pension Plan actuary told New Owner that a total of $5 million had been transferred out of the plan by Mr. Jumper. When asked about the transactions by New Owner, Mr. Jumper discussed the promissory notes without mentioning the forged documents. Two days later Mr. Jumper ordered the transfer of an additional $700,000 to AIF II in exchange for another note. It does not appear that the interest has been paid on either AFI II note. The complaint alleges as to Mr. Jumper violations of Exchange Act section 10(b) and Securities Act sections 17(a)(1) and (2). A claim was also asserted against certain relief Defendants affiliated with Mr. Jumper where portions of the funds had been transferred. The action is pending. See Lit. Rel. No. 24116 (April 18, 2018). A parallel criminal action was filed by the U.S. Attorney’s Office for the Middle District of Pennsylvania.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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