It’s not good to do what your boss directs when you know the act itself is wrong.
Ponder the fate that awaits Cameron High, the former CCO at the now defunct Idaho Falls, Idaho adviser Yellowstone Partners. He faces 20 years in prison when sentenced next May after pleading guilty earlier this year to wire fraud. For eight years, allegedly on the direction of Yellowstone CEO David Hansen, High inflated client fees and directed custodians to deduct accounts and forward the money to the RIA.
Criminal charges have been filed against Hansen, who’s due to go on trial in federal court in Idaho in January. The SEC recently barred High.
SEC whistleblowers
The case is unique because two former Yellowstone employees – COO Paul Weimer and Investment Manager Michael Dustin – are identified in court records as SEC whistleblowers who brought the curtain down on the fraud.
But first, in April 2016, Weimer and Dustin took High to lunch, where they “confronted him about the overbillings,” according to court records. High blamed Hansen’s “need for money.” The CEO was known for going on “big game hunts” in Africa, owning a “monstrous house” and for buying his own airplane.
High, who owned 5% of the adviser, warned his colleagues at that lunch that Hansen had fired another employee who had questioned the billings.
Following that fateful lunch, Weimer and Dustin returned to the office, where they confronted Hansen. The CEO pledged to refund the improper fees, according to court records.
Covering tracks
It wouldn’t be the first time Hansen would attempt to refund client fees. Years earlier, a client complained about being overbilled by $312,000. When such complaints were raised, Hansen and High often blamed an imaginary glitch at Raymond James. Other times Hansen would say High goofed. The CCO would manually compute client fees in Excel.
Hansen refunded the $312,000 after the client threatened to go to authorities.
“When these employees and investors confronted [Hansen], he gave inconsistent excuses for the overbillings, but consistently refunded the fees. He did this to placate his employees and to prevent investors from digging deeper and reporting him to authorities,” prosecutors allege.
One month after the lunch – in May 2016 – Weimer and Dustin went to the SEC. Weimer soon left the firm and Hansen fired Dustin the next month. In July 2016, Hansen’s lawyers “self-reported” the overbillings to the SEC. News report say the FBI raided Yellowstone in November 2016.
In the months leading up to the raid, Hansen borrowed $5 million to repay some of the $11 million in alleged overbillings “and stave off an SEC enforcement action and criminal prosecution,” court records state. It didn’t work. Prosecutors charged Hansen with 23 counts of wire fraud. He could face decades in prison.
No financial benefit for CCO
Court records reveal High never made any money off of the overbillings. He was just following orders. But the CCO would lie to clients who questioned billings and “deliberately avoided learning the truth” about the fraud, prosecutors state.
Hansen’s longtime friend, who lent him millions to repay clients, took over the firm under the terms of their lending agreement. Yellowstone, which had managed nearly $800 million, deregistered as an SEC RIA in November 2018.
Hansen’s attorney declined to comment to RCW and High’s attorneys didn’t return our inquiries.
