A second arbitration claim was filed this week on behalf of 14 households that collectively lost nearly $10 million in an equity investment they allege they were directed to by Jeffrey Forrest and Wealth- Wise LLC in San Luis Obispo.
They are among dozens of local investors who were clients of Forrest and who lost money in a $46 million equity fund that was wiped out in August. The claim was filed with the Financial Industry Regulatory Authority.
The arbitration case is being brought against Forrest and Associated Securities, the El Segundo-based broker-dealer with which he was registered until this year.
The first claim, filed Oct. 16, represents seven San Luis Obispo County households that collectively invested more than $5 million in APEX.
Investors in the second claim range in age from 33 to 86 and include a pulmonologist, an orthopedic surgeon, a radiologist, an ophthalmologist and a lawyer. All but one claimant, a Huntington Beach resident who is related to a local investor, live in San Luis Obispo County.
According to the claim, the investors allege they put their money in APEX Equity Options Fund after Forrest said it “was suitable for them because it was safe and that they could not lose any principal invested.”
However, the APEX private placement memorandum-a legal document for potential investors to better understand the terms and risks of an investment – does not support that point.
“The fund agreement does not contain provisions for a guaranteed return of investors’ capital contributions,” according to the offering memo.
That’s in contrast to what investors in APEX allege they were told repeatedly by Forrest and the fund’s managers, Utah-based Thompson Consulting. The arbitration claim notes that the investors were told their principal was put into a money market account. That money was used as collateral for a complex trading strategy.
Forrest contends that Thompson Consulting “strayed from what they told us they were doing and put everybody’s money at risk.”
“There is clearly a difference in what they (the fund’s managers) wrote in the PPM (private placement memorandum) and what they told us and our clients repeatedly,” Forrest said.
In fact, nowhere in the 88- page memorandum does it say the principal would be put into a money market account.
The investors in the two arbitration claims allege that Forrest and Associated Securities did not perform “appropriate due diligence” and made “material misrepresentations and omissions … including the true value, volatility and risk of loss of APEX.”
Charges include breach of fiduciary duty, constructive fraud, fraud by misrepresentations and omission as well as a specific charge against Associated Securities of failure to supervise and control. Calls to Associated Securities were not returned.
A fiduciary – which originates from the Latin “fiducia,” meaning trust – is a person or business legally responsible for acting in the best interest of the client. Registered investment advisers such as Forrest are one example of a fiduciary; others include attorneys, guardians and real estate agents.
“The law is very clear on this issue,” said Philip Aidikoff of Beverly Hills-based Aidikoff, Uhl & Bakhtiari, the lawyer representing the investors in the arbitration case. “It doesn’t matter what the investors did or did not do. The legal responsibility is on the fiduciary to always act in the best interest of the client.”
‘I trusted him’
Though all of the investors would have been required to receive the private placement memorandum as part of the APEX offering, several that spoke to The Tribune said they relied on Forrest’s recommendation rather than reading the document.
“Unfortunately, I fall into the category of trusting the adviser,” said Mark Gruidl, a family nurse practitioner in the North County who is part of the second arbitration claim. “I have a busy life with a profession and children, and I don’t have the time to do all of the legwork.” He said he invested more than $450,000 in APEX.
“I trusted him (Forrest) to handle this,” Gruidl said.
Another investor, who shared information with The Tribune on the understanding that his identity would not be revealed, provided a letter he wrote to Forrest as he prepared to make an investment in APEX. The investor, who is part of the second arbitration claim, had invested close to $2 million in APEX.
Dated Feb. 20, 2006 – six months before the fund crashed-the letter outlines that the investor had no prior experience with investments similar to APEX and that he does not make investments where the principal is at risk.
“I informed you that this investment… comprises essentially all of the liquid assets of my retirement plan and that were there any risk to the principal amount of the investment, I would not make the investment. You assured me that the fund has built-in safeguards that prevent the principal from ever being at risk,” the letter reads.
The letter was signed by Forrest, the investor said. According to the letter, Forrest’s signature was acknowledgement of the “accuracy of the … representations” in the letter.
A third claim is being prepared, Aidikoff said, which includes about 10 more households. It is expected to be filed with the Financial Industry Regulatory Authority later this month. Once the defendants receive the FINRA claims, they have 45 days to file an answer. A hearing date normally takes place about a year from filing, Aidikoff said.
Forrest is also facing a civil suit brought by a Huntington Beach-based client who invested $4 million in APEX.