The Securities and Exchange Commission announced on Tuesday that it had settled fraud charges against Utah-based registered investment adviser Foresight Wealth Management (FWM) and its principal, Adam E. Nugent, for violations related to a private fund they managed.
The SEC is ordering them to pay more than $3 million for allegedly defrauding investors who gave roughly $19.5 million to invest in a company called Agronomics.
The SEC stated that between March 1. 2018, and Dec. 31, 2018, Foresight and Nugent raised approximately $19.5 million from more than 80 investors, many of whom were individual advisory clients of Foresight and Nugent, through offerings of limited partnership interests and promissory notes in the private fund.
Instead of using the money for the company, the SEC claims the two entities misused the fund assets, failed to disclose conflicts of interests, misrepresented to investors how the proceeds of their investment would be used, and breached Ag Capital’s limited partnership agreement.
The SEC said that Foresight and Nugent agreed, “without admitting or denying the SEC’s findings, to a cease-and-desist order; joint and several disgorgement of $1,379,061, prejudgment interest of $280,003, and a civil penalty of $1,379,061; censure as to Foresight; and undertakings, an industry bar and investment company prohibition as to Nugent.”
Who is FWM?
FWM is a Utah limited liability company headquartered in Draper, Utah. It was formed in 2010, and has been registered with the Commission as an investment adviser since 2015. FWM advises multiple types of clients, including individuals, seven hedge funds, and three private equity funds, including Ag Capital.
On its Form ADV filed on Sept. 9, 2022, FWM reported approximately $1.35 billion in regulatory assets under management.
Since Nugent, a resident of Salt Lake City, formed FWM in 2010, he has been the founder, chief executive officer, sole owner, managing member, and an investment adviser representative of FWM. Nugent was a principal shareholder of Agronomic Management, Ag Capital’s original general partner.
FWM began taking investor money to grow and distribute marijuana in California. Called “syndicate transactions,” these investments typically paid investors a “net multiplier” between 1.25 and 1.60 of their original principal.
Between August 2017 and January 2018, 29 advisory clients of FWM and Nugent invested a total of approximately $2.9 million in the syndicate transactions. According to the SEC allegations, this original money was used to finance the creation of the Agronomic companies. Nugent formed Ag Capital, which was meant to finance Ag Holdings’ operations, and Ag Management, the general partner of Ag Capital, which was meant to help manage Ag Holdings’ daily affairs.
The SEC claims that to raise monies on behalf of Ag Capital for its investments in Ag Holdings and Ag Enterprises, FWM and Nugent conducted multiple offerings of Ag Capital’s LP interests and promissory notes.
The money raised was improperly used to pay off syndicate investors, including investors who were individual advisory clients of FWM and Nugent and Nugent’s personal friends, according to the SEC. Some money was also used as salary payments and fees to Nugent despite the partnership agreement stating specifically that money raised could not be used for salaries.
The court order stated that, “By the end of May 2018, the Ag Holdings venture was failing, requiring that the parties wind down its operations. Accordingly, FWM and Nugent revised Ag Capital’s original POM (private offering memorandum) to disclose that Ag Capital would use investor proceeds to invest in Ag Enterprises only. The revised POM deleted all prior references to Ag Holdings.”
The SEC is punishing Nugent by:
- Barring him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.
- Prohibiting him from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter.
- Barring him from participating in any offering of a penny stock, including acting as a promoter, finder, consultant, agent, or other person who engages in activities with a broker, dealer or issuer for purposes of the issuance or trading in any penny stock, or inducing or attempting to induce the purchase or sale of any penny stock.