The SEC charged Sam Otto Folin (“Folin”), Benchmark Asset Managers LLC (“Benchmark”) and Benchmark’s parent company, Harvest Managers LLC (“Harvest”), with misappropriating approximately $8.7 million from advisory clients, friends and family through material misrepresentations and omissions. Folin and Benchmark are based in Philadelphia, Pennsylvania.
According to the SEC, from approximately 2002 through October 2010, Folin, Benchmark and Harvest offered and sold securities in Harvest, Benchmark, and Safe Haven Portfolios LLC (“Safe Haven”), a pooled investment vehicle, promising investors that their funds would be invested in public and private companies with “socially responsible” goals and purposes. Instead, the SEC alleges that Folin, Benchmark and Harvest diverted a portion of the invested funds to pay previous investors as well as to sustain Benchmark’s and Harvest’s expenses which included paying Folin’s salary. More specifically, the SEC alleges that Benchmark and Harvest issued various “notes” to advisory clients, friends and family promising guaranteed above-market interest rates. Folin, Benchmark and Harvest assured investors that such notes were conservative and safe. According to the SEC, Folin, Benchmark and Harvest failed to disclose the true uses of those funds and continually misrepresented the value of the notes on quarterly statements.
In addition, the SEC stated that in August 2004 Folin and Benchmark formed Safe Haven, which purported to offer investments in several different portfolios, including the Private Fixed Income Portfolio, the Hedged Equity Portfolio, the Green Real Estate Portfolio and the Sustainable Enhanced Cash Portfolio. The SEC noted that Folin and Benchmark caused Benchmark’s advisory clients to invest in Safe Haven and that Folin and Benchmark also acted as investment advisers to Safe Haven. From 2006 through 2009, the SEC alleges that Folin and Benchmark caused Safe Haven to pay over $1.7 million to Benchmark and Harvest under the guise of “development costs.” According to the SEC, these “development costs” did not relate to any actual expenses incurred by Harvest or Benchmark in connection with the formation or offering of Safe Haven securities. Rather, the payments coincided with Harvest’s and Benchmark’s need for funds to pay previous investors, expenses and Folin’s salary. Moreover, the SEC alleges that Folin and Benchmark improperly amortized the development costs rather than expensing them as incurred in accordance with Generally Accepted Accounting Principles (“GAAP”) thereby causing the reported net asset values of the Safe Haven portfolio to be overstated on statements provided to advisory clients and investors.
Finally, the SEC stated that Folin and Benchmark caused Safe Haven to make loans to Harvest and Benchmark in excess of $3.9 million. In addition, Folin and Benchmark did not disclose these loans. Moreover, the SEC alleges that these loans violated several provisions of Safe Haven’s investment criteria including, among other things, that: (1) they were not supported by adequate collateral, (2) they violated the 5% net exposure requirement, and (3) they caused the portfolios to violate the “no leverage” provision. In addition, the SEC notes that the financial statements provided by Folin and Benchmark to investors did not comply with GAAP. More specifically, the SEC alleges that the financial statements improperly valued the Safe Haven loans to Harvest and Benchmark at face value, rather than fair value or net realizable value. The SEC also notes that Folin and Benchmark failed to disclose to their advisory clients Benchmark’s dire financial situation and inability to sustain itself but for the monies it received under the guise of “development costs” and the loans from Safe Haven.
Folin, Benchmark and Harvest consented to pay, jointly and severally, disgorgement of $8,706,620 plus prejudgment interest of $1,454,177. In addition, Folin consented to pay a civil penalty of $150,000 and Harvest and Benchmark have consented to pay civil penalties of $750,000 each.