Investment Adviser Charged with Operating a Fraudulent Scheme and Misappropriating $58-Million

(HedgeCo.Net) The Securities and Exchange Commission charged a San Antonio, Texas-based investment adviser with operating a years-long fraudulent scheme that raised approximately $58 million from nearly 300 investors in two investment funds.

The SEC’s complaint alleges that Robert J. Mueller and his company deeproot Funds, LLC were investment advisers to two pooled investment funds that Mueller created. According to the complaint, Mueller and deeproot persuaded investors, many of whom were retirees, to cash out annuities they held with other investment companies and invest in the funds. The complaint alleges that the funds ultimately received more than $58 million from investors. As alleged, Mueller funneled more than $30 million of the funds’ assets to other businesses he controlled, and used at least $820,000 of new investor money to pay earlier investors. The complaint also alleges that Mueller and deeproot, acting with and through defendant Policy Services, Inc. — another entity Mueller owned — paid Mueller approximately $1.6 million in salary that was not adequately disclosed to the funds or their investors while also misappropriating another approximately $1.5 million to pay Mueller’s personal expenses.

The SEC’s complaint, filed in federal district court in San Antonio, charges Mueller and deeproot Funds, LLC with violating the antifraud provisions of Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also charges Policy Services, Inc. with violating the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act, and Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder. The complaint names as relief defendants several of Mueller’s affiliated businesses and a Mueller family trust. The SEC is seeking civil penalties, disgorgement of ill-gotten gains with interest, and permanent injunctions.

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