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SEC Charges Ex-M&R Capital COO Richard Diver

Richard DiverA news release published by the Securities and Exchange Commission on March 28, 2019 reports that the SEC has filed fraud charges against Richard Diver, formerly the Chief Operating Officer of a Colorado-based investment adviser, M&R Capital Management, in connection with allegations he aided and abetted the firm’s overcharging of its customers “as part of a fraudulent scheme to inflate his own pay.”

The SEC’s complaint states that a period beginning in 2011 and ending in December 2018, Mr. Diver, of Spring Lake, New Jersey, participated in a scheme “to steal approximately $6 million from his employer.” The Commission alleges that he inflated his salary by “hundreds of thousands of dollars” annually by causing his firm to overcharge a number of firm customers exceeding 300 by a sum of about $750,000, “for the purpose of generating additional revenue.” He allegedly directed this revenue toward inflating his own salary, and when his firm’s CEO challenged him about his acts in December 2018, he “confessed to having carried out the scheme,” according to the SEC.

The SEC’s complaint describes Diver, 62, as the owner of nine percent of his investment adviser before he was terminated in December 2018, and states that his responsibilities included payroll and client bulling. “In 2017 and 2018,” according to the complaint, “Diver was supposed to receive a base salary of $100,000 per year, augmented by quarterly discretionary bonuses, for total annual compensation of $300,000 to $350,000 per year.”

As part of his advisory fee collection duties, the complaint states, he would instruct his assistant to “use licensed software to calculate the value of each client’s account” at the close of each quarter, and the software calculated the fee due to each client at the beginning of the next. Mr. Diver allegedly instructed his assistant “to access at the beginning of each quarter the client accounts at the custodians, and transfer the calculated fees to fee accounts” held in the company’s name at the custodians. Then Mr. Diver allegedly transferred these fees from the custodian fee accounts to his firm’s bank account, and used these to pay the company’s expenses, “including his own inflated salary.” Starting in 2017, he allegedly “often departed from the general practice of accurately billing clients,” specifically by billing out of the firm’s customary billing cycle and instead having his assistant bill customers “in amounts calculated from the software on off-cycle dates,” resulting in the firm billing certain customers “for five and sometimes six quarterly payments in a single year.” When he was eventually confronted by the firm’s Chief Executive Officer, he allegedly confessed to the scheme, claiming he did not have any funds available to pay restitution, because “he had engaged in wild personal spending.

The SEC has charged Mr. Diver in federal district court in Manhattan with aiding and abetting M&R Capital’s violations of antifraud provisions of the Investment Advisers Act of 1940. The Commission is pursuing “a judgment ordering permanent injunctive relief, disgorgement plus prejudgment interest thereon and civil monetary penalties against Diver” in the pending complaint; criminal charges have also been announced against Mr. Diver in the United States Attorney’s Office for the Southern District of New York.

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