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Thursday, May 14, 2015

SEC CHARGES INVESTMENT ADVISORY COMPANY AND IT'S OWNER WITH STEALING

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23255 / May 8, 2015

Securities and Exchange Commission v. ClearPath Wealth Management, LLC, Patrick Evans Churchville, as Defendants, and ClearPath Multi-Strategy Fund I, L.P., ClearPath Multi-Strategy Fund II, L.P., ClearPath Multi-Strategy Fund III, L.P., and HCR Value Fund, L.P., as Relief Defendants, Civil Action No. 15-cv-00191 (D.R.I. May 7, 2015)

SEC Charges Rhode Island Investment Advisory Company and Company Owner with Misusing and Stealing Investor's Money

The Securities and Exchange Commission announced fraud charges against a Rhode Island investment adviser, ClearPath Wealth Management, LLC, and its president and owner, Patrick Evans Churchville, for operating a fraudulent scheme that resulted in at least $11 million in losses to investors.

According to the SEC's complaint, from at least December 2010, ClearPath and Churchville diverted deposits from new investors to pay prior investors, used proceeds from selling particular investments to pay unrelated investors, used investors' funds as collateral for loans to make investments for their own benefit, used other investors' money to repay the loans, converted investor funds into investments for ClearPath's own benefit, and stole $2.5 million of investor funds to purchase Churchville's waterfront home in Barrington, Rhode Island. The complaint alleges that Churchville and ClearPath used a variety of deceptive acts and misleading accounting tricks to conceal their fraud from auditors, accountants, fund administrators, and their own staff.

The SEC's complaint alleges that, when many of ClearPath's investors requested distributions of their investments in September 2013, Churchville prolonged the scheme by lying to investors about the status, worth, and disposition of those investments.

ClearPath and Churchville allegedly misappropriated and misused investors' cash and assets through a years-long scheme that lulled investors into believing that their assets were safe, according to the complaint filed today.

The SEC's complaint charges ClearPath and Churchville with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 ("Advisers Act") and Rule 206(4)-8 thereunder. The complaint further charges ClearPath with violating Rules 206(4)-2 and 206(4)-7 under the Advisers Act, and charges Churchville with aiding and abetting ClearPath's violations of those rules. The SEC seeks to require ClearPath and Churchville to return their allegedly ill-gotten gains with interest and to pay civil monetary penalties. The SEC also seeks preliminary and permanent injunctions against both defendants.

Four other entities - ClearPath Multi-Strategy Fund I, L.P., ClearPath Multi-Strategy Fund II, L.P., ClearPath Multi-Strategy Fund III, L.P., and HCR Value Fund, L.P. - are named in the Commission's complaint as relief defendants based on their receipt of investor funds. The SEC is seeking an order requiring that these entities disgorge their ill-gotten gains.

The Commission has also sought leave to intervene in a state court action in order to preserve funds allegedly misappropriated by ClearPath and Churchville and to promote the equitable distribution of funds to harmed ClearPath investors.

The SEC's investigation, which is continuing, has been conducted by Cynthia Storer Baran and Robert B. Baker of the Asset Management Unit, and Emily R. Holness, Trevor T. Donelan, Marie Hagelstein, H. Norman Knickle, and Marc J. Jones of the Boston Regional Office.