Detroit Adviser Allegedly Stole $3M in Pension Funds
Mayfield’s firm, MayfieldGentry Realty Advisors LLC, manages a pension fund for Detroit’s police officers and firefighters, according to the SEC release. Four other top officials at the firm were also charged for helping Mayfield try to cover up the theft. Mayfield is founder, president, and chief executive of the firm. He is a resident of Fort Lauderdale, Florida. In February, Mayfield pleaded guilty for his part in a pay-to-play bribery scheme involving Detroit’s pension funds. (See “Adviser to Detroit Pensions Guilty in Pay to Play Scheme.”)
According to the SEC complaint, the theft was made early in 2008 by Mayfield, who appropriated funds from the Police and Fire Retirement System of the City of Detroit. That pension fund, MayfieldGentry Realty’s largest client, has generated millions of dollars in transaction and management fees for the firm. Mayfield used the money to purchase shopping properties and title them in the name of a MayfieldGentry affiliate.
Other executives at MayfieldGentry gradually became aware that Mayfield had siphoned money away from their biggest client. Rather than come clean about the theft and risk losing the sizeable business the firm received from the pension fund, MayfieldGentry officials instead devised a plan to secretly repay the pension fund by cutting costs at the firm and selling the strip malls. They devised a plan to secretly repay the money, and used financial reporting and an extensive budget presentation to mislead the pension. Their plan ultimately failed when MayfieldGentry could not raise enough capital to put the stolen amount back into the pension fund.
More than four years after the theft, in April 2012, the firm’s principals told the pension about the theft, and were promptly fired and effectively put out of business.
Mayfield and his firm agreed to settle the charges by paying back the stolen amount.
Other Senior Officers Joined in Deception
“Mayfield stole pension money from Detroit’s retired police officers, firefighters, and surviving spouses and children to buy strip malls,” said Andrew Ceresney, co-director of the SEC’s Division of Enforcement. “To make matters worse, other senior officers at the firm joined together with him to cover up his deceitful and grave betrayal of trust, all for the purpose of keeping the client.”
The other MayfieldGentry executives charged in the complaint are Blair D. Ackman, chief financial officer; Marsha Bass, chief operating officer; W. Emery Matthews, chief investment officer; and Alicia M. Diaz, chief compliance officer and general counsel.
The SEC alleges that during a critical budget meeting with fund trustees in 2011, Diaz stressed MayfieldGentry’s success in generating a cash return for the pension fund, stating that “the cash we deliver at the end of the day is the ultimate testimony in terms of what we do.” Diaz touted a projection that MayfieldGentry would remit $4.96 million to the pension fund in 2012. Diaz never told the pension fund trustees that the cash remittance would be reduced by more than 60 percent once the stolen money was taken into account.
At the same meeting, Matthews claimed that MayfieldGentry had achieved a benchmark-beating 6.8% return for the pension fund. He didn’t explain that this return would be materially impacted by the $3.1 million theft.
The complaint alleges that MayfieldGentry and Chauncey Mayfield violated two sections of the Investment Advisers Act of 1940, and Ackman, Bass, Matthews, and Diaz aided and abetted those violations. Mayfield and his firm agreed to pay disgorgement in the amount of $3,076,365.88 and be permanently enjoined from violating those sections. They neither admit nor deny the allegations in the settlement, which is subject to court approval. In a parallel criminal matter, Mayfield is awaiting sentencing in connection with his guilty plea for participation in the pay-to-play scheme.
The complaint is here.